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Forget what Kelley Blue Book says. Forget how much you paid or whether you’ve just overhauled the engine. If you donate a car to charity, the U.S. Internal Revenue Service (IRS) wants to remind you that you can only claim a $500 deduction.

The only exception to this rule is if the charity sells the car for more than $500. In tax-speak, that translates to deductions are “limited to the gross proceeds from the sale of the vehicle by the charity. The charity must provide a written acknowledgment within 30 days after the vehicle is sold that notifies the taxpayer of the amount of the gross sales proceeds.”

That is the big news the agency reminded taxpayers of on December 22 as the year wrapped up, and taxpayers began opening their new copies of TurboTax. The IRS also cautioned that all deductions require a “charity’s written acknowledgment”. In the real world, we call those receipts.

So that 1984 Nissan Stanza in the shed behind the garage? You can deduct what the charity sells the car for (yes, they’re required to let you know). As with any tax issue, there are some exceptions, notably here if the vehicle is sold for less for charitable purposes, so always check with your tax preparer or the IRS itself before basing your return on blog entries and other information you’ve stumbled upon in the media or on the web.

Posted under Automotive, Finance

The Internal Revenue Service has announced plans to reduce the agency’s budget by cutting phone service for consumers seeking tax help. The agency said it would eliminate three customer service hours each day from its service and save approximately $10 million annually.

President Colleen M. Kelley of the National Treasury Employees Union (NTEU) called the move “an absolute outrage” and said that her organization was notified the change would be made January 23, 2006, a period she called the height of taxpayer help season.

The IRS had previously sought to save money by reducing the number of customer service centers it operates, but abandoned that plan earlier this year after consumer advocates and other interested parties protested.

Posted under Customer Service, Finance

Personal exemptions and standard deductions will rise, tax brackets will widen and individuals will be able to make larger tax-free gifts in 2006, thanks to inflation adjustments announced today by the Internal Revenue Service.

By law, a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being modified for 2006. Key changes affecting 2006 returns, filed by most taxpayers in early 2007, include the following:

The value of each personal and dependency exemption, available to most taxpayers, will be $3,300, up $100 from 2005.

The new standard deduction will be $10,300 for married couples filing a joint return, $5,150 for singles and $7,550 for heads of household. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15% bracket from the 25% bracket will be $61,300, up from $59,400 in 2005.

The annual gift tax exemption will be $12,000, up from $11,000 in 2005.
Revenue Procedure 2005-70, containing a complete rundown of inflation adjustments, is posted on the IRS Web site and will appear in Internal Revenue Bulletin 2005-47, dated Nov. 21, 2005.

Posted under Finance

The Internal Revenue Service has certified the model year 2006 Toyota Highlander Hybrid as being eligible for the clean-burning fuel deduction. This certification means that taxpayers who purchase one of these hybrid vehicles new during calendar year 2005 may claim a tax deduction of up to $2000 on Form 1040.

Under Working Families Relief Act of 2004 which was signed into law in October of 2004, the clean-burning fuel deduction is limited to up to $2,000 for certified vehicles first put into service in 2005 and $500 for vehicles placed in service in 2006. No deduction will be allowed after 2006.

Federal Law allows individuals to claim a deduction for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel. By combining an electric motor with a gasoline-powered engine, these hybrid vehicles obtain greater fuel efficiency and produce fewer emissions than similar vehicles powered solely by conventional gasoline-powered engines.

This one-time deduction must be taken in the year the vehicle is originally used. The taxpayer must be the original owner. Individuals do not have to itemize deductions on their tax return to claim this deduction. This benefit can be taken as an adjustment to income on the Form 1040.

The amount of the deduction for the Toyota Highlander Hybrid was set after the manufacturer, Toyota Motor Sales, U.S.A., Inc. documented for the IRS the incremental cost related to the vehicle’s electric motor and related equipment.

Posted under Automotive