First of all You Should Know About Corporate Income Tax

First of all You Should Know About Corporate Income Tax

The current tax system imposed on corporations by the U.S. government is at best, a biased system; for corporations that have a net profit, taxes on those profits amount to a full one-third. So, if you're doingbusiness as a standard "C" corporation, and you do manage to make a profit, you're going to owe Uncle Sam about 30%. That's an amazing figure, so let's look at some of the behind-the-scenes information that will help to enlighten us as to the "why" so much tax should be levied.

The first thing you must understand when dealing with the corporate tax structure, is that for the most part, many large corporations do not pay the complete 30% tax that would typically be levied against an individual if they were in the same situation; corporate accountants and the sheer process by which corporations must report their income, expenses, deductions, depreciation, dividends, and any other financial transactions allows for huge deductions that typically offset any tax due. This concept is a major topic of discussion today, as we attempt to better control and regulate corporate accountability for their finances.

When you have large corporations that are obviously reporting earnings andpaying dividends, yet they pay no tax, you should be tipped off to the fact that there is a problem. How to fix that problem, may be another subject altogether.

The latest proposals have been to eliminate the corporate tax altogether. This would shift the tax burden to the individuals of this country; that is a tremendous shift from the post-war era of the Second World War, when corporations and individuals shared the responsibility almost equally. Thanks to the lobbying done by corporate lobbyists over the last thirty years, we've finally reached the point of no return. The latest proposals have come from within the halls of Congress to eliminate corporate tax, and let the average taxpayer assume all the responsibility.

In case some of you have noticed, we as individual citizens are losing more and more of our take home pay each year, to taxes of some kind. Medicare, social security, and income taxes take a larger portion of our dispensable income each year. This would take a step closer to making even more of our income the property of the tax man.

What about this seems unfair? As pointed out by the individuals who are in favor of eliminating corporate tax, it would encourage capital investment and job growth in this country and that is absolutely true, it theoretically would do just that. But since when does theory actually work in practice? Communism works in theory. Many individuals believe it is simply another way to provide tax-free income to CEOs, and Board Members. The latest scandals such as Enron and HealthSouth have shown this country real hard evidence of the corporate abuses that are rampant in this country, and so far uncontrolled. The Sarbanes-Oxley Act has taken great steps toward greater accountability on the part of the corporate environment, but elimination of corporate tax is simply a legal way to avoid paying the tax.

The most interesting information I have found in researching this topic, is the fact that the media has paid little or no attention to these issues, thus allowing the purported growth of the corporate lobbyists to go virtually unnoticed by the American public. While mush emphasis has been placed on the Social Security issues we face, nothing has been mentioned about the loss of revenue we've experienced over the last thirty to forty years because of the decreased taxation of corporate America.

Where have tax laws and law makers turned to accommodate the decrease in corporate tax? There have been increases in individual tax liability and there has been an increase in sales tax. The sales tax affects the poorer of thiscountry as a percentage of income, than the rich. The loss of revenue from the corporate structure of this country have led to starved educational systems, cities and counties that are revenue poor, and a economic system for the poor that only becomes harder to sustain.

When you factor in the ability of the wealthy and the corporate entities of thiscountry to hire brilliant accountants that find loopholes in the tax system, and relieve their clients entirely of their tax liability, you cannot believe that the current system operates for the people, by the people, can you?

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Simplifying the Most Difficult Senior Planning Decision: For Your Family Home

Simplifying the Most Difficult Senior Planning Decision: For Your Family Home

As Father Time marches on, the question of what to do with the home becomes a greater concern. In some cases, ruminating on the alternatives can dominate one's thinking. If a person is aware of the various options and chooses a path that makes the most sense, peace of mind can often be the result.

Studies have shown that 90% of married couples and 62% of single persons reach retirement owning their own homes. Coupled with non-monetary considerations of whether to stay or sell, one major objective is how to convert the equity in the home to an income.

In some cases, selling the home is the most attractive option. However, remaining in the home could be simpler and less stressful. Many people are too quick to jump to the "sell" option because they are not aware of all the options that would allow staying in the home and extracting the equity as well.

Weigh each of the following options against selling before throwing in the mental towel and listing the home.

An AARP study done in 2000 showed that more than 90% of seniors wanted to stay in their homes for as long as possible. Almost 82% still wanted to stay even if they needed care.

That is a very loud vote. Therefore, I would recommend looking at long term care insurance that either only provides home care or a more comprehensive plan that includes home care. Many seniors balk at the topic of long term care because they figure they will never go to the "home." Statistically, 50% of them are right. What many fail to realize is that at some point almost everyone will need some kind of help. Home care benefits may provide the needed assistance while allowing the person to remain in their home.

As seniors age, the upkeep of the home may become overbearing. The lawn still needs cutting, the bushes trimmed and the flower beds kept free of weeds. The inside needs dusting; the carpet needs vacuuming and the windows need washing. Eventually, in many people's minds, these become reasons to sell.

I would invite you to put a pencil to this. Look at hiring someone to come in and clean. Hire a lawn maintenance company or the teen-ager down the street trying to pay for his car. Having these things taken care of in this manner is a lot less expensive than moving to a retirement home.

If the home is too big, close some rooms off. If it cost too much to heat or cool, seal the vents in un-used rooms.

Sometimes it may make sense (both for the senior and the child) for one of the children to move in and serve as a caretaker, cook, lawn-cutter and/or pool boy/girl.

There are several ways to get the equity out of the home, while continuing to live in the home.

First, the home could be re-financed. Mortgage interest rates today are low. Properly invested, the funds released could cover the new mortgage payments. If not, the difference could be less expensive than rent. Depending on the person's age, putting a part of the proceeds into an immediate annuitymay even cover the mortgage payment and then some.

If the person has a retirement plan that mandates required minimum distributions starting at age 70 1/2, the interest deduction on the new mortgage could be a welcome offset to the RMDs, which must be included in taxable income.

For large estates subject to estate taxes, placing the home in a Qualified Personal Residence Trust (QPRT) can potentially remove the home, and any appreciation from the date of the transfer into the trust, from the taxable estate. Proper trust drafting can also provide for the housing needs of the survivor of a married couple and, ultimately, leave the home to the children.

Selling the home to the children is another option. By structuring the sale and lease back according to the rules, the $250,000 single person or $500,000 married couple capital gains tax exclusion could apply. Here, again, the parents would continue to live in the home and pay rent to the children. This removes the home from the taxable estate as well.

A gift-leaseback is an alternative. The value of the home will use up part (or all) of the lifetime unified credit. Consult a tax attorney if the value of the home is large and this option is one of the ones on the table.

If the homeowner(s) are age 62 or older, a reverse mortgage may be a viable option. The National Council on Aging calculates there are 13.2 million seniors who could qualify for a reverse mortgage of $20,000 or more. The average would be $72,000.

Reverse mortgages can reduce or eliminate the children's inheritance. Today, there are Federal Rules for reverse mortgages and about 90% are federally insured. Fees can be high and will differ among lenders. Shop around.

Prior to making the decision to stay in the home or sell, each of these options should be part of the discussion among the senior, their children and financial advisors.

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How To Perform A Sizable Charitable Donation From Your Personal IRA - Tax Free!

How To Perform A Sizable Charitable Donation From Your Personal IRA - Tax Free!

If you are over 70 1/2 years old, want to make a gift for a special charitable project, but your only liquid asset is your IRA, I have good news for you.

On August 17, 2006, thePension Protection Act of 2006 (PPA 2006) was signed into law. This nearly 1,000 page piece of legislation marked the most sweeping changes to thepension arena in 30 years.

Let me give you two common examples that contain problems faced by seniors solved by PPA 2006-

Roger and Claire are retired. Roger spent his working career in the aerospace industry. He was more than well compensated and over the yearsaccumulated a very large 401(k) plan. When he retired, he rolled his 401(k) into an IRA. Other than their home, the IRA is far and away their biggest asset.

For years, Roger and Claire have been supporters of the Humane Society. Their local chapter is building an entire new wing on to their kennels. Roger and Claire would love to make a significant donation-somewhere in the neighborhood of $50,000 to $100,000.

Bill and Diane both worked during their entire careers. Mary taught 6th grade for 40 years. Bill was a career military officer. After his retirement, he spent another 20 years working in the private sector. Like Roger, Bill has a large IRA.

When Bill turned 70 1/2, he was required to start taking the minimum required distributions each year from his IRA. But Bill and Diane don't need the income; their other retirement income sources are more than adequate. Nevertheless, Bill must take these RMDs and pay tax on them as income.

Bill and Diane have been active in their church all their married life. Their church just bought a new organ. The church did not pay cash for the organ; the majority of it was financed. Bill and Diane would like to pay off the organ.

Both Roger and Claire and Bill and Diane are warm-hearted people. But, prior to the passage of PPA 2006, their generosity could have been thwarted by several things-

1. In both cases, their principal liquid asset was an IRA. Neither couple had other assets from which to make a gift.

2. If the large sums were withdrawn from their IRAs, they would be subject to ordinary income tax.

3. If given to a charity, rules which limit the amount that could be deducted as a charitable contribution would have to be followed. This means that they may still have to pay tax on a portion of their IRA withdrawals.

But thanks to provisions in PPA 2006, Roger and Claire can make their gift to the Humane Society and Bill and Diane can pay off their church's new organ using money from their IRAs and not pay any tax on the withdrawals. But they have to follow the rules-

1. First, you must be at least 70 1/2.

2. You can give up to $100,000.

3. This only applies to 2006 and 2007.

4. You can't withdraw the money from your IRA and then give it to your charitable cause. The transfer must be made directly from the custodian of the IRA to the charity.

5. These gifts, called IRA charitable rollovers, count towards your required minimum distribution for the year.

6. IRA charitable rollovers are not permitted for gifts to donor advised funds and supporting organizations. However, there are some exceptions that applyto funds held by community foundations: scholarship, field of interest, and designated funds qualify. So the first step is to contact your intended cause to see how they are classified and whether or not the law allows an IRA charitable rollover gift.

7. The gift must be a pure gift. In other words, there can't be any personal benefit strings attached like tickets to an event.

8. You don't have to report the IRA charitable rollover as income.

9. However, you don't get a charitable deduction for your gift. Sorry, you can't have your cake and eat it too.

This new law is a real winner. In these two examples, the Humane Society is able to build new kennels and a church pays off an organ they thought they were going to have to finance. The donors were able to make it happen despite the fact that the only real asset they had was an IRA.

I do not dispense tax advice. It is imperative that you consult with your tax advisor and the charity to make sure it is qualified and that the gift is made in the proper manner.

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Your First Opportunity Cost and Your Long Term Care Decision

Your First Opportunity Cost and Your Long Term Care Decision

As Father Time marches on, the question of what to do with the home becomes a greater concern. In some cases, ruminating on the alternatives can dominate one's thinking. If a person is aware of the various options and chooses a path that makes the most sense, peace of mind can often be the result.

Studies have shown that 90% of married couples and 62% of single persons reach retirement owning their own homes. Coupled with non-monetary considerations of whether to stay or sell, one major objective is how to convert the equity in the home to an income.

In some cases, selling the home is the most attractive option. However, remaining in the home could be simpler and less stressful. Many people are too quick to jump to the "sell" option because they are not aware of all the options that would allow staying in the home and extracting the equity as well.

Weigh each of the following options against selling before throwing in the mental towel and listing the home.

An AARP study done in 2000 showed that more than 90% of seniors wanted to stay in their homes for as long as possible. Almost 82% still wanted to stay even if they needed care.

That is a very loud vote. Therefore, I would recommend looking at long term care insurance that either only provides home care or a more comprehensive plan that includes home care. Many seniors balk at the topic of long term care because they figure they will never go to the "home." Statistically, 50% of them are right. What many fail to realize is that at some point almost everyone will need some kind of help. Home care benefits may provide the needed assistance while allowing the person to remain in their home.

As seniors age, the upkeep of the home may become overbearing. The lawn still needs cutting, the bushes trimmed and the flower beds kept free of weeds. The inside needs dusting; the carpet needs vacuuming and the windows need washing. Eventually, in many people's minds, these become reasons to sell.

I would invite you to put a pencil to this. Look at hiring someone to come in and clean. Hire a lawn maintenance company or the teen-ager down the street trying to pay for his car. Having these things taken care of in this manner is a lot less expensive than moving to a retirement home.

If the home is too big, close some rooms off. If it cost too much to heat or cool, seal the vents in un-used rooms.

Sometimes it may make sense (both for the senior and the child) for one of the children to move in and serve as a caretaker, cook, lawn-cutter and/or pool boy/girl.

There are several ways to get the equity out of the home, while continuing to live in the home.

First, the home could be re-financed. Mortgage interest rates today are low. Properly invested, the funds released could cover the new mortgage payments. If not, the difference could be less expensive than rent. Depending on the person's age, putting a part of the proceeds into an immediate annuitymay even cover the mortgage payment and then some.

If the person has a retirement plan that mandates required minimum distributions starting at age 70 1/2, the interest deduction on the new mortgage could be a welcome offset to the RMDs, which must be included in taxable income.

For large estates subject to estate taxes, placing the home in a Qualified Personal Residence Trust (QPRT) can potentially remove the home, and any appreciation from the date of the transfer into the trust, from the taxable estate. Proper trust drafting can also provide for the housing needs of the survivor of a married couple and, ultimately, leave the home to the children.

Selling the home to the children is another option. By structuring the sale and lease back according to the rules, the $250,000 single person or $500,000married couple capital gains tax exclusion could apply. Here, again, the parents would continue to live in the home and pay rent to the children. This removes the home from the taxable estate as well.

A gift-leaseback is an alternative. The value of the home will use up part (or all) of the lifetime unified credit. Consult a tax attorney if the value of the home is large and this option is one of the ones on the table.

If the homeowner(s) are age 62 or older, a reverse mortgage may be a viable option. The National Council on Aging calculates there are 13.2 million seniors who could qualify for a reverse mortgage of $20,000 or more. The average would be $72,000.

Reverse mortgages can reduce or eliminate the children's inheritance. Today, there are Federal Rules for reverse mortgages and about 90% are federally insured. Fees can be high and will differ among lenders. Shop around.

Prior to making the decision to stay in the home or sell, each of these options should be part of the discussion among the senior, their children and financial advisors.

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Opportunity Obviously Cost Too Much and Your Long Term Care Decision

Opportunity Obviously Cost Too Much and Your Long Term Care Decision 

If you are out shopping for longterm care (commonly abbreviated as LTCI or LTC), I'm going to encourage you to take a look at a way of providing long term carebenefits that is probably new to you. On the other hand, if you are in the crowd that thinks they will never need long term care, I would also suggest you evaluate this line of thinking.

Dick and Jane are both age 65,recently retired and models of good health. They have ignored the long term care subject until recently. They just put Jane's mother, who is 88, into anursing home. Talk about sticker shock! She is in a nice place, but Dick and Jane are not 100% certain that her assets will allow her to stay there for the rest of her life.

Consequently, they have been out looking at long term care for themselves. They figure they can afford to insure a portion of what it might cost them if they ever need some form of LTCI, so they are looking at a benefit of $3,000 a month. The premium is around $4,200 a year.

Here's a new concept that Dick and Jane must become accustomed to now that they are retired. They both had good jobs during their working years. If they ever wanted to buy anything, it was just a question of looking at their income to see if they could swing the purchase. Pretty straightforward.

Now that they are retired, most of their expenditures are going to come frominvestment returns on the assets they have accumulated, not income from working. So they need to understand the difference between premium cost and opportunity cost. Here's what I mean-

If they elect to buy this $4,200 a year long term care policy, the money has to come from somewhere. Chances are it's coming from the interest earned on perhaps a CD or an annuity. But there is an opportunity cost associated with paying the premiums from earnings on any asset.

Let's say they are going to pay this $4,200 from the interest on a CD they own which is earning 5.4% interest. Since interest is taxable, and assuming they are in a 15% tax bracket, they would have to have $91,300 in that CD to produce $4,200 after tax to pay the premium.

They can't spend the $91,300. It can't grow. Basically, they have "committed" $91,300 of their assets to pay the premium on their LTC policy. That's the one "job" of this $91,300. The premium may only be $4,200 a year, but the opportunity cost is $91,300.

Let's take a look at another of their alternatives. It's called asset based long term care. How it works will unfold as I provide the example and contrast below.

One approach to asset based long term care involves re-positioning $91,300 of Dick and Jane's CD to a combination long term care/life insurance policy plan with an insurance company. Here's what moving this money does for them-

The money on deposit with the insurance company grows at interest, but it is tax-deferred interest so the insurance company will not send them 1099s every year for an amount they have to pay tax on like the bank is required to do. In 10 years, assuming current rates, the $91,300 will grow to $127,000; in 20 years $161,000. The CD, remember, does not grow, as its job is to spin off interest to pay the annual $4,200 premium on the traditional LTCI plan.

If either Dick or Jane needs any form of long term care, the insurance company plan will pay them $3,900 a month for 50 months--$900 a month more than the traditional plan.

But here's the real kicker.

If Dick and Jane never need long term care, then the camp that doesn't buy it would have been right. If Dick and Jane bought the traditional long term careplan, in 10 years they would have paid out $42,000 in premiums and about $7,400 in taxes on their CD interest in order to net out the required premium. That's a total of $49,700. The $91,300 portion of their CD would still be $91,300.

However, if Dick and Jane never need long term care, chose the asset basedlong term care plan and both die, for example in 10 years, the outcome is different. They have paid no annual premiums and the life insurance company will pay about $198,000 tax free to their kids.

Which sounds like a better plan?

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Completely Five Uses For Survivorship Life Insurance

Completely Five Uses For Survivorship Life Insurance

Survivorship life insurance is a life insurance policy that insures two people and pays at the second death. Also referred to as second-to-die life insurance, commonabbreviations are SWL for survivor whole life and SUL for survivor universal life.

Advantages

Since the insurance company does not have to pay until the second person dies, the premium is lower.

The insurance company could issue a standard policy, even if one person has health issues. In extreme cases where one person is entirely uninsurable, apolicy with an acceptable premium is possible.

There are many uses for a survivorship life insurance policy. Let's look at five.

Estate Taxes

Life insurance is the least expensive method of providing cash for the payment of estate taxes. Since 1981, the law allows one spouse to transfer all their property to the other spouse at death tax free. This is the "unlimited marital deduction." If there is an estate tax due, it is not due until the second spouse dies.

In response, life insurance companies designed the survivorship life insurance contract. Since the premium is lower, it is even a better solution than a policyinsuring only one person.

Replacing an Asset Given Away

Charitable remainder trusts (CRTs) allow a person to sell a highly appreciated asset (stock, land, a business etc.) without paying a capital gain tax, receive an income tax deduction and convert the asset to an income. At their death, the asset passes to the charity, not to their heirs.

An easy way to circumvent the children's disinheritance is to insure mom anddad with a survivorship life insurance policy for the value of the asset given to charity. Sometimes premiums can be entirely paid from the income from the charitable remainder trust, which is often found money if the original asset was illiquid. The income tax deduction can be spread over six years if the asset contributed to the CRT is large enough. This is another premium source.

Even Out an Inheritance

A couple has three children and a family business. One of the children is active in the business and the other two have careers of their own. If the bulk of the estate is the business and the plan is to leave the business to the active child, the other two children come up short.

A second-to-die policy on mom and dad can even things out. For example, let's say the total estate is 6 million and the business represents 4 million. If the parents leave the business to the active child and the remaining 2 million to the other two children and name these children the beneficiary of a 6 million dollar survivorship life policy, everything is equal.

The child active in the business gets the business worth 4 million. The other two children inherit 1 million apiece from the balance of the estate and 3 million apiece from the survivorship life insurance policy.

Post Phone a Buy Sell

If Joe and Bill were equal partners in a business, good planning would have them meet with their attorney and accountant, put a value on the business that each are happy with and have a buy-sell agreement drawn. Fund the agreement with life insurance and the funds are assured for the buy-out.

However, what if Joe's wife, Ann, is also active in the business? If Joe dies, Ann would inherit Joe's interest and continue to work in the business as usual. In this case, it would make sense to use a survivorship life insurance policy to insure both Joe and Ann. The buy-sell agreement would be worded to trigger the buy-out at the second of their deaths.

To Pay the Income Tax on an Inherited Qualified Plan

This is the day of mega 401(k) plans. When a 401(k), IRA or other qualified plan is passed, for example, to the children, income tax is required upon a distribution.

Most people do not realize the large potential tax on what may be their largest asset. Let's look at the worst case. If the qualified plan money is subject to the top estate tax bracket, which is currently 45% and the child is also in the top income tax bracket, currently 35%, the amount left to the child is only a fraction of the total amount. Note there is a deduction against income for estate taxes paid. A good estimate of the net total percentage paid in taxes at the top brackets is 70%.

Use a survivorship life insurance policy to offset the income tax on the distributions, the estate tax or both.

There are many other uses of survivorship life insurance policies. If your situation includes any of these examples, I would recommend looking at the use of a second-to-die policy.

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ILIT - Your First Irrevocable Life Insurance Trust

ILIT - Your First Irrevocable Life Insurance Trust

Irrevocable Life Insurance Trusts (ILITs) are planning tools used to keep life insurance proceeds outside of the taxable estate.

For example, if a married couple has an estate of 6 million, they can pass 4 million to the next generation with no tax if they set up the proper trust arrangement to take advantage of the maximum lifetime unified credits. That leaves 2 million still subject to tax under the current law.

The logical thing to do is to purchase a survivorship life insurance policy for the projected tax. However, a policy purchased in the manner most people are familiar with, the problem is not solved; it is compounded.

If the couple has any "incidences of ownership" in the policy, it will be included in the estate. The purchase of a one million dollar policy increases the estate to 7 million. Four million passes tax-free, but now the taxable estate is 3 million. This increases the tax by some $225,000.

Enter the Irrevocable Life Insurance Trust.

Attorneys draft Irrevocable Life Insurance Trusts. The trust will apply for its own Federal Tax ID number. The trust will then apply for the survivorship life insurance policy. It will be the applicant, owner and beneficiary of the policy. Typical wording is "The John and Mary Smith Irrevocable Life Insurance Trustdated April 5, 2007, JPMorgan Chase Bank, trustee."

In this example, since neither John nor Mary has any "incidence of ownership" in the policy, it will not be part of their taxable estate.

The Owner and Beneficiary

As opposed to using an ILIT, I have worked with a few cases where the only child or children are the owner and beneficiary. This may work. However, each year the parents gift the money to pay the premium, there is no assurance that the money will be used to pay the premium. Furthermore, the children, as owners, have access to the cash values. An ILIT has much more assurance.

I have seen the trustee be a child, the couple's attorney, accountant or a long-time family friend. All of these will work, but an un-biased third party, such as a bank, is much better. If an individual is the trustee, name a bank as the successor trustee. Banks don't die.

The Crummey Letter

Typically, the life insurance premiums are paid by the parents in the form of annual gifts to the Irrevocable Life Insurance Trust. Currently (2007) a person can give up to $12,000 each year to as many people as they want without paying gift tax or having the amount subtracted from their lifetime exclusion. However, these gifts must be "present interest" gifts, which mean the recipient must have immediate rights to the gift.

Gifts to an ILIT, for paying premiums on a life insurance policy owned by the ILIT, are not "present interest" gifts. A "Crummey" letter qualifies the gift as a "present interest" gift. The letter is not crummy or poorly written; the letter takes its name from a court case initiated in 1968 by Clifford Crummey, who was trying to do this very same thing: make annual gifts present interest gifts. Ultimately, the outcome of the case required the use of a letter, now known as the "Crummey" letter.

A letter is sent every year to each of the beneficiaries of the ILIT. It simply states that a gift has been made to the ILIT and they can withdraw it if they want within a certain timeframe, usually 30 or 60 days. If they don't exercise this right, the gift becomes a present interest gift.

Obviously, there is an "understanding" between the parents and children to ignore these letters, as it is a part of the overall estate plan. The annual gifts and the ensuing yearly Crummey letters do not have to go to children with a legal capacity, such as age 18. I have seen letters written to 4-month-old babies. In this case, even though the baby was not able to read the letter or understand the estate planning rationale behind it, it did not exercise its right to the gift. Phew, another legal bullet dodged.

As you can see, it is very important to arrange for the annual drafting of these Crummey letters. Some banks' trust departments used to provide this service if they were the trustee of the trust. This was just a courtesy as they never would see or manage any of the life insurance proceeds.

The best bet is to have your attorney do the letters. I have one client whose law firm (under a written set of instructions) has the premium notice from the life insurance company sent to their firm, prepare and send the Crummey letters and then pay the premium. All the client has to do is open a letter each year from the law firm indicating a premium is due and send them a check. Other than that, they don't have to lift a finger. A nice service.

If you have an estate that will be subject to estate taxes and your advisors suggest a life insurance policy to pay the tax at a discount, make sure you evaluate the use of an Irrevocable Life Insurance Trust.

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Just One More Question For You! Do You Know What Hybrid Car Tax Deduction Is?

Just One More Question For You! Do You Know What Hybrid Car Tax Deduction Is?

Well, what is a hybrid car? A car that qualifies to beat all the pollution and treat nature as its friend. The government is also its friend. Get a relief for that car too.

The hybrid car tax deductionenables owners of a hybrid vehicle - that is cars that have a gasoline-powered engine and an electric motor -- it's a one time deal under the FamiliesTax relief act.

Cars bought between 2004 and 2005 can have the relief up to $2000 and $500 for cars to be bought in 2006.

Fortunately, a revised energy bill that was signed in August 2005, gives hybrid cars even more lucrative incentives. Due to this, a full dollar tax credit comes into play, much to the respite of the tax payers.
They should now postpone the purchase of their hybrid vehicle to 2006, and avail the tax credits. They are however restricted to only the first 60000 owners and so you now need to run to your dealer to be among the first ones.

Under the existing law, the value of the tax break depends on the tax bracketyou fall into because it is a tax deduction. Those who have purchased hybrid vehicles in 2004 and 2005 can clam a $2000 reduction on their 2004 or 2005tax returns. This deduction will give you a relief of $600 if you are in the 33% bracket but $300 if you are in the 15% bracket.

Vehicles prior to 2004 can also claim a relief but has to do so within the two years from filing of tax or three years from initial return date.

Claiming your tax deduction is relatively simple; you do not have to itemize the deduction in order to claim it, but you must use Form 1040. Your deduction should be documented underneath the form and be classified as 'Clean Fuel'.

See, your hybrid car not only saves the environment but puts a few dollars in your pocket too. What more can you ask from your high-brid car...

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