Cut your taxes by buying a car
Tuesday, December 27, 2011
I love my Chevy Cavalier. Carlos -- yes, a la Stephen King, we name our vehicles and Carlos is what I call my current auto, at least when he's running well; he's got some other less printable monikers when he occasionally acts up -- has been a reliable ride for almost a dozen years.
He did a great job taking me from South Florida back home to Texas. The hubby drove Michael, our SUV, as we formed our mini-convoy back to the Lone Star State in 2005.
And Carlos ferried my cousin and me on our "recapture our youth" tour of my native West Texas a few years back.
Not Carlos, but his much cleaner twin
Since I work from home, Carlos usually doesn't have to do much heavy duty travel; a business lunch here, a meeting over coffee there.
But now that I'm making more frequent road trips to visit my mother about 50 miles up the road, the hubby has been gently nudging me to get a newer ride.
I'm resisting, on sentimental as well as financial grounds. We haven't made car payments for a decade, and I'm not sure I'm ready to do so again, even if it's for a very short period.
Plus, Michael, the vehicle we use more than mine, also is 11+-years-old and probably should be replaced first.
But as I watch the end of a tax break approach, and Carlos' odometer click off a few more miles, I'm thinking maybe I should go car shopping this week.
Sales tax vs. income tax deduction: The tax break that is tempting me to take a test drive is the state and local sales tax deduction that expires on Dec. 31.
This is a great itemized deduction option for residents of Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming since their states don't collect any income taxes on wages.
But it's also useful for some who live in states with low tax rates on income. In those jurisdictions, some taxpayers can claim a larger deduction on sales taxes.
Although the deduction for state and local sales taxes has shown up on Schedule A since 2004, it's technically just one of the many temporary tax breaks known as extenders. They get that name because Congress usually extends, or renews, them.
That's been the case for the sales tax deduction in 2006, 2008 and 2010.
Ideally, the House and Senate would extend it and other similar tax breaks before they expire. But we all know that Congress is far from ideal.
Often the laws lapse and then are reinstated retroactively. That makes it hard for tax planning purposes, but at least we eventually get the breaks.
Extending again vs. tax code permanence: In early December, when it looked like Congress might be able to get some work accomplished before the end of the year [pause for laugh at crazy talk], Rep. Jim McDermott (D-Wash.) and 65 colleagues from both sides of the political aisle sent a letter to leaders of the House Ways and Means Committee asking that the sales tax deduction be included in any year-end tax legislative package.
In addition, some lawmakers, such as Sen. Maria Cantwell (D-Wash.), have been pushing to make the state and local sales tax deduction a permanent part of the tax code.
She has bipartisan support from her Senate and House colleagues who see this deduction as one that provides tax break fairness and parity with taxpayers who have long been able to write off state income taxes.
A permanent sales tax deduction, however, is not likely to happen in this political climate. Every tax break is a bargaining chip as lawmakers examine ways they can get more dollars to reduce the federal deficit.
So the best sales tax deduction scenario for 2012 is that the tax break will be renewed retroactively, probably for a year. But that possibility might not be until the very end of 2012.
Of course, if Congress is really ambitious [crazy talk laughter pause, take two], it could renew it for a couple of years, letting us plan for 2013.
If you don't trust Congress to do that, no one blames you.
So if you need a car or soon will and you itemize your deductions, you might want to head to a nearby dealership this week.
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