IRS Reminds Car Shoppers About 2009 Tax Break

WASHINGTON — The Internal Revenue Service today reminds individual taxpayers who are considering buying a new car that they have until Dec. 31 to take advantage of a tax break that may not be around in 2010.

Taxpayers who buy a qualifying new motor vehicle this year after Feb. 16 can deduct the state or local sales or excise taxes they paid on the first $49,500 of the purchase price. Qualifying motor vehicles include new passenger automobiles, light trucks, motorcycles, and motor homes.

Individuals who itemize and those who take the standard deduction can benefit from this tax break. In states without a sales tax, other taxes or fees can qualify if they are assessed on the purchase of the vehicle and are based on the vehicle’s sales price or as a per unit fee.

The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

Taxpayers who take the standard deduction need to complete Schedule L and attach it to Form 1040 or Form 1040A to increase the standard deduction by the allowable amount of state or local sales or excise taxes paid on the purchase of the new vehicle. Also, check the box on line 40b on Form 1040 or line 24b on Form 1040A. Individuals who itemize should include the allowable amount of state or local sales or excise taxes from the purchase of the vehicle on Form 1040, Schedule A.

Pre-Retirement Checklist

As you approach retirement, there are various matters that you should take care of. Here are some of the items you should check:

Health Insurance. Are you among the lucky few who will continue to be covered after retirement? If not, you’ll need to replace the coverage. If you will be eligible for Medicare, you may want to start checking up on “Medigap” coverage.

  • Tip: Before you retire, take care of any non-emergency medical, dental, or optical needs (if your employee plan coverage is broader than Medicare).

Other Types of Insurance. Once you retire, you may need to replace employer-provided life insurance by buying added life coverage. You should also consider purchasing long-term health care insurance to cover the risk that you’ll need a lengthy nursing home stay in the future.

Social Security. Decide whether you want to take early Social Security benefits if you’re retiring before your full retirement age. You can get 80% of your benefits at age 62.

  • Tip: For most people, taking Social Security benefits at their full retirement age makes the most financial sense. Be sure to discuss this with a financial advisor if you think you might need to take early benefits.

Company Plan Payout. It’s important to plan well in advance how you’ll take the payout from your pension plan or 401(k) plan. Will you transfer the funds to an IRA? How will the funds be invested?

Relocation. If you’re planning on moving to another state, check out various states to see what the financial ramifications of living there will be.

  • Tip: If you’ll be relocating, it might be a good idea to buy the new home before retirement.