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We've received several inquiries from customers regarding how the federal stimulus package will affect their auto dealerships. The article below provides answers in detail:
What the Federal Stimulus Package Means for Vehicle Purchasers
By Nancy Ferruzzo, Esq. and Rob Cohen, Esq.
Included in the massive economic stimulus package signed into law by President Obama on February 17, 2009, is a new deduction for state and local taxes paid on the purchase of a new automobile.
Purchasers of new (not used) automobiles, motorcycles, and trucks with a gross vehicle weight of no more than 8,500 pounds, and motor homes (regardless of weight), will be entitled to a new deduction for state and local sales taxes paid on purchases of such vehicles.
Here is the fine print:
• Purchases must be made between February 17 and December 31, 2009.
• While the total price of the vehicle purchased can exceed $49,500, only the sales tax attributable to the first $49,500 is eligible for the deduction.
• The deduction is phased out for those individuals with modified adjusted gross incomes in excess of $125,000 ($250,000 for a married couple filing jointly).
Currently, individual taxpayers are allowed to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A of their federal income tax returns. Generally, itemized deductions are only allowed if the taxpayer elects to forgo claiming the standard deduction. Also, state and local income taxes or state and local general sales taxes deducted on Schedule A must be added back to adjusted gross income to determine alternative minimum taxable income.
However, this new deduction is available to taxpayers whether or not they itemize deductions (although a taxpayer who itemizes deductions cannot elect to deduct sales taxes in lieu of income taxes on Schedule A as well as taking the new deduction). Further, the new deduction is allowed against the alternative minimum tax and could prove to be particularly valuable for purchasers in states with relatively high tax rates on auto purchases, such as California, Illinois, Indiana, Massachusetts, Nevada, New Jersey, Rhode Island, Tennessee, and Washington.
Here are a few additional things to know about the sales tax deduction:
1. It only applies to purchases, not leases.
2. It does not apply to used vehicle purchases. By definition, demonstrators and rollbacks are used vehicles.
3. Do not provide tax advice to customers. General information may be provided, however, always explain to customers that in order to know exactly how the deduction will apply to them, they must consult with an accountant or tax advisor.
The above is a brief summary of the new law and does not constitute specific legal or tax advice. Clarifications and questions should be directed to the taxpayer's attorney or accountant.
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