Buy A New Car, Get IRS Cash Back

The IRS announced today that taxpayers who buy a new passenger vehicle this year may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year.

“For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year,” said IRS Commissioner Doug Shulman. “This deduction enables taxpayers to buy now and get cash back later on their tax returns.”

The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

IRS also alerted taxpayers that the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction.

The special deduction is available regardless of whether a taxpayer itemizes deductions on their return. The IRS reminded taxpayers the deduction may not be taken on 2008 tax returns.

See the full story at the IRS website.

I received an IRS Tax Notice correcting my return. Now what?

The IRS uses many different form letters to correspond with taxpayers. Because these letters need to be "one size fits all" formats to apply to many different situations, they can be hard to read and understand when they are addressing your specific case. Many times you'll read an IRS notice over and over again and still not be sure exactly what's happened or what you should do about it.

One such IRS Notice is the one that says they've adjusted or corrected your tax return. That language is scary enough because it sounds like an audit just happened. And actually, it technically did. If the IRS adjusted your return then they either assessed additional tax or they reduced your tax owed (yes, this actually happens quite often).

So, what should you do? First, compare your actual tax return (usually Form 1040) with the information in the IRS Notice. The IRS tries to give you a side-by-side comparison of your return and the changes in the letter, but it never makes much sense. Your actual return will make things clearer.

If the changes resulted in a refund due to you, then you'll get a check or a direct deposit in about 6 weeks. That is, unless you have other obligations enforceable by the IRS (back taxes owed, child support, student loans, etc.) in which case the IRS will keep the money and apply it to this other debt.

If the IRS change letter says you owe more than before, again check it out with your records. If you agree with the change then do nothing further (except try to resolve it). If you disagree with the change then make sure you respond to the notice ASAP as instructed.

Of course, an experienced tax attorney, CPA, or Enrolled Agent can be retained to go over your specific issues in more detail if necessary. You can also get more information from the IRS website at Tax Topic 651.

Good luck and take care.