Everything you needed to know about tax code 179

Background: In the mid 1940s, Congress passed a law that would allow for tax deductions to farmers after World War II that would allow them to write off the cost of new equipment to encourage more people to work the land. Although many people took advantage of the law, it sat on the books for years without any changes to speak of. However, in 1996 the amount of money allowable to be written off started to grow for the sole purpose of encouraging business. Besides farm equipment, other things were added to the list such as vehicles.

To keep to the original spirit of the law, vehicles that have a gross vehicle weight of over 6000 pounds qualify for accelerated tax write-offs in the year they are bought up to a certain dollar amount. Until recently, that amount was $25000. In simple terms, if you qualify, you could write off up to $25000 of the amount of the vehicle in the same year you purchased it, plus the remainder of the price over the following four years.

GREAT NEWS: In May of this year, thanks to the 2003 Tax Act, the amount was raised to $100,000. That means that you can buy one or more eligible vehicles and write-off the entire amount up to $100,000 on your 2003 tax return! This is all documented in Section 179 of the tax code. Prior to this, you could take advantage of writing off depreciation, but it had to be done over five years.

EXAMPLE: So say you spend $40,000 to buy a new truck or SUV thats used 100% in your self-employed business activity (meaning you conduct your operation as a sole proprietor, LLC member, or partner). Provided you make the vehicle purchase before year-end and start using it for business before then, you can probably deduct the entire
$40,000 cost on this years business tax forms.

SO WHATS THE CATCH? Only that your newly acquired vehicle will need to be used more than 50% of the time for business purposes. Heres a little more background so youll understand how the Section 179 break works. Ill walk you through steps to complete this process and hopefully reduce your tax liability for THIS YEAR.

STEP ONE is to find a vehicle that qualifies for the deduction. Again, it has to have a gross vehicle weight rating of over 6000 pounds. At the end of this article, I will give you a list of new vehicles that is current AND that for sure qualify based on the weight. You can also usually look on the drivers door of any car, and there will be a sticker with pertinent information on it. GVWR is what you are looking for.

Next, be SURE to PURCHASE the vehicle. Leases do not qualify. However if you DO lease there are certain deductions you can take, but generally you can only take them as you make payments. Interest rates are a non-issue, but rebates will affect the amount you can write off because factory rebates lower the sales transaction price.

MILEAGE LIMITATIONS: As with most vehicle related deductions, you are going to have to document your mileage to protect yourself in the case of an audit. Remember, your vehicle must be used a minimum of 50% of the time for business purposes to even qualify for the deduction, but the AMOUNT of business use will also dictate what amount you can write off this year. For instance, lets say you buy a $50,000 Lincoln Navigator and you use it 100% for your business, then you can write off $50,000 this year. But lets take that same Navigator, and say you only use it for business 60% of the time.... then your write off for the year is $30,000 ($50,000 times 60%=$30,000).

To read the rest of this extensive tax code 179 visit http://www.prestigeok.com, your one stop shop to buy new or used cars, sell your vehicle, get an online insurance quote, buy spare parts, accessories and even an Extended Warranty. Original article written by Jerry Reynolds, GM of Prestige Ford in Texas.

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Combat Pay Can Count toward Economic Stimulus Payment

Combat Pay Can Count toward Economic Stimulus Payment Eligibility

IR-2008-48, March 20, 2008

WASHINGTON — Military personnel serving in combat zones have the option of including their nontaxable combat pay on their 2007 or 2008 income tax returns if it helps their eligibility for the 2008 economic stimulus payments.

To receive the stimulus payment this year, combat zone personnel or their spouses must file a 2007 income tax return by Oct. 15. Otherwise, they can claim the economic stimulus payment on next year’s income tax return.

“The last thing we want our troops in Iraq or other war zones to worry about are their tax returns. But we do want the troops, and their families stateside, to know they may qualify for the economic stimulus payment,” said Linda E. Stiff, Acting Commissioner of the Internal Revenue Service.

Starting in May, the IRS will issue economic stimulus payments of up to $600 ($1,200 for married couples) plus a $300 payment for each qualifying child younger than 17. The payments are based on 2007 income tax returns. The payments for individuals will begin to phase out starting at $75,000 in adjusted gross income ($150,000 for married couples).

Even individuals and families who normally do not file a tax return because they have no filing requirement may qualify for an economic stimulus payment. They may be eligible for the minimum payment of $300 ($600 for married couples) plus the $300 for each qualifying child younger than 17.

People must have at least $3,000 in qualifying income to get a payment. Qualifying income is defined as any combination of earned income (such as wages or taxable income from self-employment), nontaxable combat pay and certain benefits from Social Security, Veterans Affairs and Railroad Retirement.

Military personnel who normally would not file an income tax return because their 2007 income is not taxable can file a simple Form 1040A with the IRS if they want to receive the economic stimulus payment. They should report their nontaxable combat pay on Line 40b of the Form 1040A to show at least $3,000 in qualifying income. The Department of Defense lists the amount of excluded combat pay on line 12, box Q of Forms W-2 received by military personnel.

If a military person is serving in a combat zone, his or her normal tax filing requirement is extended until at least 180 days after leaving a combat zone. However, spouses or others with a power of attorney can prepare and file a 2007 income tax return on their behalf so that the stimulus payment is received this year.

The IRS has developed Package 1040A-3, an 8-page publication containing tax tips, a sample Form 1040A and a blank Form 1040A. The package, available at http://www.irs.gov, contains everything needed to file the return immediately.

To ensure that a stimulus payment will be received in 2008, the return must be filed by Oct. 15 to allow sufficient time for processing.

There are a number of special tax code provisions that apply to members of the military serving in combat zones. They include:

· All military pay earned by enlisted personnel or warrant officers is excluded from gross income;

· Monthly pay of up to $6,867.60 earned by commissioned officers is excluded from 2007 gross income.

· All military pay earned by enlisted personnel hospitalized because of injuries sustained in a combat zone is excluded from gross income during the period of hospitalization. The exclusion is limited to two years after the date of the termination of combatant activities in the combat zone.

· Commissioned officers hospitalized because of injuries sustained in a combat zone have a monthly maximum exclusion of $6,867.60 for 2007 and have the same two-year limitation.

· Military personnel who miss a tax filing deadline because they are in a combat zone have 180 days after they leave that combat zone to file a tax return, if they have taxable income.

All the provisions also apply to members of the Reserves and the National Guard.

The IRS reminds filers that they can get their stimulus payments faster by using direct deposit when they file their tax return.

In addition, the IRS urges people to file electronically. For people who normally are not required to file a tax return, the IRS and the Free File Alliance have a special program set up to allow for free electronic filing. For those with computer access, IRS Free File –Economic Stimulus Payment is available at IRS.gov.