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MONTHLY TAX NEWSLETTERJuly 2011
With gas prices finally drifting down from their recent highs of $4.00 per gallon, drivers are once again deciding whether it makes sense to replace their current gas powered automobile with a more fuel efficient vehicle. Five years ago, Hybrids were all the rage. Now, thanks in part to a $7,500 tax credit from the federal government, some US drivers are beginning to seriously look at purchasing Plug-in Electric vehicles.
According to the IRS, "For plug-in electric vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500."
Currently, all seven certified vehicles meet the requirements making them eligible for the full $7,500 tax break. Below are the vehicles certified for the Qualified Plug-In Electric Drive Motor Vehicle Credit as of the end of June:
Please note that there are a few additional rules applicable to this tax break. For starters, to qualify, you must purchase the car as new. Used vehicles don't qualify. Plus, if you lease the car, the tax credit goes to the company that you leased the vehicle from, and not to you. Finally, you're supposed to use the vehicle primarily in the US.
200K Car Limit
Like with the Hybrid Car Tax Credit, this credit will begin to phase-out on some of the more popular models. To level the playing field for each manufacturer, the allowable tax credit starts to disappear for a manufacturer once they sell 200,000 plug-in electric vehicles, as follows:
As we discussed in our August 2006 Newsletter, the phase-out of the Hybrid Vehicle Tax Credit began once a manufacturer sold 60,000 vehicles. The popularity of the Toyota and Lexus hybrids caused the credit for their models to begin to be phased-out almost immediately. With sales of the Nissan Leaf at 1,000 vehicles, there is no reason to believe that this credit will be phased-out any time soon.
New Tax Break Won't Lose to the AMT
Another problem with the Hybrid vehicle tax credit was that taxpayers subject to the Alternative Minimum Tax (AMT) did not receive any tax benefit. And with more and more taxpayers paying this tax each year, many Hybrid purchasers were out of luck.
The Qualified Plug-in Electric Drive Motor Vehicle Credit is not limited by the AMT, making this tax break much more valuable to individuals in a position to purchase Electric vehicles. As we wrote in our October 2010 Newsletter in an article on the AMT, all but a few of my firm's married clients whose Adjusted Gross Income (AGI) fell between $210k and $615k were hit by the AMT.
Yes, There's a Form for That
In case you're wondering, yes, there is an IRS Tax form to complete in order to claim the Qualified Plug-in Electric Drive Motor Vehicle Credit. Check out Form 8936, to see the information you need to report to the IRS to claim this credit, as well as two pages of instructions.
Last month, a client forwarded my office an obviously fraudulent e-mail he received from someone posing as a representative of the Internal Revenue Service. The e-mail asked this client to complete a form including social security numbers and banking information, and then fax the completed form to a number listed on the e-mail. Luckily, the fax number was out of service, and this client was not able to forward the completed form to this person, even though he tried to do so more than once.
It's important to remember that the IRS does not correspond with taxpayers electronically. If you receive an e-mail from the Internal Revenue Service asking you to provide information, that e-mail is most likely fraudulent. Here is what the IRS has posted about scams like this:
The Internal Revenue Service has issued several recent consumer warnings on the fraudulent use of the IRS name or logo by scamsters trying to gain access to consumers’ financial information in order to steal their identity and assets. When identity theft takes place over the Internet, it is called phishing.
Phishing (as in “fishing for information” and “hooking” victims) is a scam where Internet fraudsters send e-mail messages to trick unsuspecting victims into revealing personal and financial information that can be used to steal the victims’ identity. Current scams include phony e-mails which claim to come from the IRS and which lure the victims into the scam by telling them that they are due a tax refund.
[This is the scam e-mail that my client received.] In this scam, fraudsters modify a genuine IRS form, the W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to request detailed personal and financial information. This could include nationality, passport number, bank account and PIN numbers, spouse’s name and mother’s maiden name, or other personal or financial information or security measures for financial accounts. The scammers may use the genuine form number and name or may make up a new form number, such as W-4100B2.
They either e-mail or fax the form or letter. If only a letter, the letter itself contains the request for the personal and financial information. The letter, which claims to come from the IRS, states that the recipient will face additional taxes unless he or she quickly faxes the required information to the number provided by the scammer.
In reality, taxpayers file the genuine Form W-8BEN with their financial institutions, not with the IRS. Additionally, the genuine W-8BEN does not request the taxpayer’s passport number, bank account number, security or similar information.
You Can Help Shut Down Phishing Schemes
The good news is that you can help shut down these schemes and prevent others from being victimized. If you receive a suspicious e-mail that claims to come from the IRS, you can relay that e-mail to a new IRS mailbox, firstname.lastname@example.org. Follow instructions in the link below for sending the bogus e-mail to ensure that it retains critical elements found in the original e-mail. The IRS can use the information, URLs and links in the suspicious e-mails you send to trace the hosting Web site and alert authorities to help shut down the fraudulent sites. Unfortunately, due to the expected volume, the IRS will not be able to acknowledge receipt or respond to you.
You can read about additional scams discovered by the IRS at: http://www.irs.gov/newsroom/article/0,,id=211669,00.html
The IRS announced that the standard mileage rate will increase to 55.5 cents per business mile driven, effective July 1, 2011. That is a jump of approximately 9% over the 51 cents allowed for the first part of 2011. According to the IRS, the primary reason for the rate hike is higher gasoline prices.
When you use your car for business, driving between job sites is deductible. So is driving between your home and a temporary job site, job interviews, and conferences. Commuting between your home and a regular place of business generally isn't tax deductible.
There are two ways for you to calculate your automobile expenses. You can either multiply the total business miles driven during the year with the applicable rate of $.555 for the last six months or $.51 for the first six months, or you can base your deduction on the percentage of miles your car was driven for business multiplied by actual costs incurred. Allowable costs include gas, insurance, repairs, parking at home, and either your lease payments, or if you own your car, a factor for depreciation.
Generally, unless you drive your car relatively few miles each year, with most of those miles being allowable business miles, you're better off basing your deduction on the standard mileage rate.
Other Deductible Miles
Any mileage driven in connection with a qualified move is deductible at a rate of 23.5 cents per mile effective July 1, 2011, up from 19 cents per mile for the first part of the year, and should be reported on a Form 3903, Moving Expenses. Medical mileage is deductible at the same rates, and should be reported with all other medical expenses on the Schedule A.
The standard mileage rate for using your automobile in connection with a charitable activity did not increase and remains at 14 cents per mile. Make sure to report these miles with other charitable contributions as an itemized deduction of the Schedule A.
The weather is getting hot. Picnics, barbecues and getting in the water somewhere are the thoughts that occupy our minds.
There might even be brief occasions when a high school student might think about getting into college, or a parent might be concerned about finding money for college, but why not wait until high school starts again in September?
Or for those parents with younger children, setting up camp schedules for their 7 and 8 year-olds, planning for summer and vacations – Money for college and other college search questions can stay on the back burner. After all, those kids will not head off to college for another 10 years or so.
Yes, why worry? There is no pressure (otherwise known as “ignorance is bliss”).
If our College Search GamePLAN blog had a big air horn, we’d let it rip right now!
Remember the old saying: “A stitch in time saves nine”?
This is a golden rule if your student is college bound (no matter the age).
Since we don’t have a foghorn or an air horn like those big old trains, we’ll just try to spread the word and hope a few will listen and TAKE ACTION!
Here are just some of the issues we will be discussing over the next few weeks:
So stay tuned. The posts won’t be super long and will address a variety of issues as well as money for college. But if they flip your college search and financing switch and help get you on the go, they will have done the trick.
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