Cars 
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2012 Hybrid & Electric Car Tax Credit Update

Tesla Model SMany many years ago in a Congress far far away a law was passed that offered tax credits for the purchase of hybrid cards and light trucks. The law was the Energy Act of 2005, the Congress was the 109th, and President Bush was the one who signed it. It created a tax credit of up to $3,400 for qualifying vehicles but the credit expired when 2010 came to a close.

What took its place was a new tax credit on electric vehicles created by the American Recovery and Reinvestment Act of 2009. Electric vehicles purchased in or after 2010 is eligible for up to $7500 in tax credits.

Here’s what the two associated sections say:
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 Taxes 
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Child Tax Credit Explained

Little Tax DeductionOne of the popular credits extended along with the Bush tax cuts and the tax brackets was the child tax credit. The child tax credit is a nonrefundable $1,000 tax credit for every child under the age of 17, subject to eligibility for both the filer (income eligibility) and the child (age isn’t the only factor in determining eligibility).

For families, this tax credit is very popular because a $1,000 tax credit for someone in the 25% tax bracket is like getting a $4,000 deduction. If you’re in the 15% tax bracket, it’s like getting a $6,666 deduction – for each child.

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 Taxes 
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Watch Out for these Expired Tax Breaks

ExpiredDuring the last two years, many of us have become accustomed to a number of tax breaks that were instituted to help during a time of economic difficulty. However, these tax breaks were never meant to last forever — and they haven’t. Tax breaks that you might have been counting on are disappearing, and you might be in trouble.

In some cases, the disappearing tax breaks are a bit of a nuisance. In other cases (especially for those who should have taken a required minimum distribution on an IRA in 2010), though, the absence of a tax break you have come to rely on might be a little more difficult to deal with financially. As you file your taxes, here are some things to be aware of with regard to a reduction in tax breaks.

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 Taxes 
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Itemizing Taxpayers Must Wait to File Tax Returns

You know how it took until the 11th hour for Congress to extend the Bush era tax cuts? One of the consequences of that late change to the tax structure was that the IRS had been preparing for the the tax cut to expire. That means that they’re not ready to process tax returns based on current tax law.

I usually tell people that they should get their tax documents in order as early as possible if they expect a refund. There’s no reason to wait until April 15th to file if you’re waiting on a refund. The average tax refund last year was over three grand… why wait until April to get your own money back?

Sadly, while you might be ready whenever you receive your W-2 and 1099s in early February, it turns out that the IRS won’t be. According to CNN Money:

The delay affects both paper and electronic filers who itemize deductions on Form 1040 Schedule A. That includes those claiming the new Educator Expense Deduction, which credits grade school teachers for out-of-pocket expenses of up to $250.

It also includes those claiming deductions for college students, covering up to $4,000 of tuition, which is claimed on Form 8917, though the IRS said there will be no delays for those that claim other education tax credits.

It stinks but you can blame your Congressional representatives for it!


 Taxes 
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The Standard Deduction

Tax deductions are wonderful, aren’t they? While they’re not as good as a nice tax credit, tax deductions can reduce your tax liability significantly depending on your income tax bracket.

In the United States, you have two options when it comes to claiming deductions. You can go the easy route of claiming the standard deduction, which is a set amount each year that requires no documentation, or you can itemize your deductions, which allows you to select which deductions you want to claim and requires you to back it up with documentation.

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 NEWS 
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2010 Tax Credits for Hybrids and Electric Vehicles

Tesla RoadsterThis latest CNN article on the tax breaks California residents can get on plug-in hybrids surprised the heck out of me – you could get a Nissan Leaf ($32,5000) for only $17,000 after federal, state, and local tax credits. The federal government would offer a $7500 tax credit, California would offer a $5,000 rebate, and San Joaquin Valley offers $3,000 in rebates.

That made me wonder where other vehicles stood in the whole tax incentive world, to which I turned to FuelEconomy.gov. They break down the credits into five categories – diesels, hybrids, plug-in hybrids, electric vehicles, and alternative fuel vehicles. We’ve taken a look at these in the past but I thought they deserved another look.

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 Taxes 
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Tax Audit Red Flags

Red Flags!Last month I had the pleasure of talking to Rich Preece, Director of Product Management for TurboTax, about the improvements they’ve made to this year’s version of the tax preparation software. One area that they’ve improved is in their Audit Risk Results section, which identifies parts of your return that might trigger an audit. They reviewed the audited returns and collected the top twenty five to thirty reasons they believed triggered an audit. Then they look at your return, see if there are similarities, and bring them to your attention. It’s a feature from year’s past but it was the first time I really paid much attention to it. The purpose of the Audit Risk section isn’t to dissuade you from taking deductions that are rightfully yours, it’s designed to remind you to take a microscope to that section to make sure you did everything correctly.

For example, a common audit trigger is the child and dependent care credit. To claim the credit, you need to provide the social security number of the child or dependent. It’s not uncommon for a divorced couple to both claim a child if they are filing separately. What ends up happening is that when the first tax return is processed, the social security number is claimed. When the second tax return is processed, an audit flag is triggered because the child’s social security number was claimed in another tax return. So the purpose of these features, and of the following list of tax audit red flags, is to identify areas you need to take a closer look. Don’t let the fear of an audit stop you from claiming what is rightfully yours, but be careful.

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 Taxes 
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What is the Earned Income Tax Credit?

Earned Income Tax CreditThe Earned Income Tax Credit is a refundable tax credit that is designed to help low income workers. It was created in 1975 and has been expanded on several occasions, unlike some other tax laws, to continue to help low income taxpayers.

How does it work? If your earned income is under a certain amount, to be explained below, then you are given tax credits based on the number of qualifying children you have (including having no qualifying children). If you qualify, then you can get a tax credit on the following schedule based on the number of qualifying children:
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