Continuing our effort to provide you with valuable tax information, we will periodically update this page with useful tips and information on issues that you commonly deal with. One-Time Tax Deduction for Sales Tax on 2009 New Car Purchases

With summer fast-approaching, and vacation season about to begin, long-distance highway travel to your favorite family getaway may be on your mind. And with it, you may be pondering the possibility of a new family car in which to cover the long miles. If you are considering getting a new car, for that or any other reason, then you should be aware that the environment for car buying has just gotten better.

The Internal Revenue Service announced recently that taxpayers who buy new passenger vehicles during the remainder of this year may be entitled to deduct state and local sales and excise taxes paid on their purchases when they prepare their 2009 income 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 actual amount of the state and local sales and excise taxes paid on up to $49,500 of the purchase price of any qualified new car, light truck, motor home or motorcycle. To be a qualified purchase, the vehicle must be new, its original use must commence with you, and the purchase must be transacted after Feb. 16, 2009, and before Jan. 1, 2010.

As an example of how to calculate your deduction, if you buy a new car for $30,000 and pay 8 percent sales tax on the purchase, you will be able to take a $2,400 deduction on your 2009 income tax return.

The tax deduction for sales tax on the purchase of a qualified new vehicle is available regardless of whether a taxpayer itemizes deductions on the return. But be clear on this, the deduction can only be taken on the 2009 tax return--not on the 2008 tax return filed during 2009.

Be aware, too, that the amount of the allowable deduction is phased out for higher-income taxpayers.

To review more of the specifics, see our full story on this one-time opportunity to save tax money on your next car purchase.

Tax Guide 2009

Items That Are Not Taxable Income
There are many forms of cash receipts you may think of as income that do not constitute "taxable income" and, thus, do not have to be included in income reported on your tax return. Surely, you don't want to report such items as taxable income and pay unnecessary taxes.   For a quick review of several items that do not constitute taxable income, please review Nontaxable Income.

Claiming Medical and Dental Expense Deductions
Already the itemized deduction for medical expenses has been cut back by the limitation that only expenses exceeding 7.5 percent of adjusted gross income are eligible for deduction. Now there is talk of limiting the deduction further, or even eliminating it altogether. But, for now, you can still claim an itemized deduction for medical and dental expenses.   To learn more about claiming this deduction, please read Medical and Dental Expenses.

Rental Real Estate
Those who rent out residential or commercial real estate during the year generally are responsible for reporting the resulting rental income and expenses on Schedule E, Supplemental Income and Loss. Special rules may apply for certain types of rental income, such as the rental income from a vacation home or a farm property.   For an overview of the reporting requirements for rental income, take a look at Rental Real Estate.

Business Income
The starting point for computing your income tax liability on business income is, of course, your gross business receipts or sales. From this, you subtract your cost of goods sold (if any) to arrive at your gross profit. But there is more.    For a refresher course on what is and isn't reportable business income, and the distinctions between various types of income that must be reported in different places on your tax return, please review Business Income.

Tax News

Reforming Health Care by Taxing Health Care?
Senate Finance Committee's report on policy options for financing comprehensive health care reform proposes to pay for reform by taxing health care expenditures that are now tax free. The report proposes limiting the exclusion of employer-provided health insurance from employees' taxable income, limiting or eliminating the tax-free treatment of Health Savings Accounts and Flexible Spending Accounts, and further limiting or eliminating the itemized deduction for medical expenses.    For the rest of the story, read Reforming Health Care by Taxing Health Care?

IRS Reminds Small Businesses to Use Tax Breaks
In recognition of Small Business Week 2009 (May 17 to 23), the IRS issued a reminder to small businesses to take advantage of tax-saving opportunities offered through the American Recovery and Reinvestment Act (the 2009 Recovery Act). The 2009 Recovery Act established, extended or expanded a number of tax deductions and credits for small businesses. Some of these tax breaks, such as bonus depreciation, the higher limit for special expensing of capital expenditures, and lower estimated tax payment obligations, apply only for 2009.    For more on this story, please read IRS Reminds Small Businesses to Use Tax Breaks.

Social Security/Medicare Trustees Warn of Worsening Financial Conditions
For the third year in a row, the trustees of the Social Security and Medicare trust funds have issued a "Medicare funding warning," triggered when the Medicare system becomes too reliant on general revenue funds instead of premiums. The trust funds supported by FICA payroll taxes are in grave danger of exhaustion of assets. It is only a matter of time before an increase in taxes or a decrease in benefits must be implemented to correct the imbalance in these funds. In their report, the trustees said, "Projected long run program costs are not sustainable under current program parameters."    To find out why, read Social Security/Medicare Trustees Warn of Worsening Financial Conditions.

Obama Administration Releases 2010 Budget, Including Tax Proposals
The Obama Administration released its complete FY 2010 federal budget proposal on May 11, including President Obama's ambitious effort to revise portions of the tax code. The tax proposals include raising the top marginal tax rates for individual income tax, extending permanently the new "making work pay" credit, and extending other tax incentives currently available, largely targeted to middle-income families.    For more on how this budget proposal could affect your taxes, please read Obama Administration Releases 2010 Budget, Including Tax Proposals.