tax credits

VW tax credits cost Uncle Sam millions

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

taxes-blog-VW-tax-credits-cost-Uncle-Sam-millions

Volkswagen marketed its diesel-fueled autos as high performance, super clean and environmentally friendly.

Those promises were enough to convince tens of thousands of car buyers. The claims also got a nod of approval from the IRS.

Everybody was duped. And the German automaker’s dishonesty cost the U.S. Treasury millions in tax credits.

Millions wrongly paid

For more than a decade, various tax credits have been offered to buyers of fuel-efficient autos. Diesel vehicles, which are popular in Europe but have yet to hit U.S. roads in large numbers, were on that list for a while.

Buyers of some of the Volkswagen makes and models now in question got a tax credit of up to $1,300.

An analysis by the Los Angeles Times found that the IRS paid out as much as $51 million in alternative fuel vehicle tax credits for these Volkswagen diesel buyers in 2009, the 1st year the company manipulated the vehicles’ emissions software.

Will Uncle Sam ever get that money back?

Payback via EPA fines

Don’t worry, VW diesel drivers. You won’t have to repay the alternative fuel vehicle tax credits you got. Just as with victims of Bernie Madoff’s Ponzi scheme, the government will absorb that loss.

But some argue that Volkswagen should factor the associated tax credits into the Environmental Protection Agency fines it eventually will pay for its Clean Air Act violations.

Each of the affected 482,000 VW cars could be subject to a maximum fine of $37,500. That adds up to just more than $18 billion in total fines.

Don’t expect the feds to collect that much from VW. The EPA likely will take less than the precise fine amount just to be done with the matter quickly and get some money in hand. The German company has set aside around $7.2 billion to pay for its emissions violations.

So even if the tax credits aren’t expressly part of the final fine calculation, Uncle Sam will get back more than enough to cover the ill-paid tax breaks.

Too many tax credits?

The bigger question is: Should fuel-efficient auto and similar tax credits be offered in the first place?

There is a long history of lawmakers at all levels trying to use taxes to shape public behavior. Sin taxes are added or increased to discourage bad habits, such as smoking or eating unhealthy foods. Tax breaks are offered to encourage things that are seen as more positive, such as saving for retirement.

Should Uncle Sam reward or chide you through tax savings or penalties? The answer, like most everything involving taxes, is it depends.

It depends on your personal tax situation. Will you suffer or benefit? It depends on your political perspective. Are you in favor of more or less government involvement in your life?

In this particular case, I’d ax auto tax credits.

Tax breaks can help in the development of products, especially new ones competing with entrenched industries. The research and development tax credit, which is pending renewal as part of the tax extenders legislation, is a good example of how the tax code can help create new products and technologies that offer benefits for the greater good.

But tax credits for buying a specific product — in this case, cars — go too far. It’s not the government’s job to use tax money to do a company’s marketing. Once Uncle Sam has helped you develop your great new product, it’s up to you as the manufacturer to convince consumers of its value.

Federal lawmakers should have learned from the hybrid credit. The primary takers of that tax break were buyers of the Prius, an auto that already was the market leader. The tax break was just a bonus.

The situation is similar now in the electric car arena. The Tesla is the darling of this alternative fuel tax credit. Does Uncle Sam really need to be helping out people who can afford to shell out 6 figures for an auto? No.

Taxpayers shouldn’t be asked to pay for other people’s toys.

 

Small Business Health Care Tax Credits

  • Westchester NY accountant Paul Herman has all the answers to your personal finance questions!

    Small Business Health Care Tax Credit

    Changes to the SBHCTC beginning in 2014:

    • The credit increases to 50 percent for small businesses and 35 percent for tax-exempt employers.
    • You must purchase insurance for your employees through SHOP.*
    • The credit is only available to you for 2 consecutive years.
    *SHOP, or Small Business Health Options Program, is the Health Insurance Marketplace for small business and tax-exempt employers.
    Small Business Health Care Tax Credit for Small Employers
    Federal budget sequestration required cuts will reduce the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers under the Internal Revenue Code section 45R. The refundable portion of the claim will be reduced by 8.7 percent.
    Review additional information about the effect of sequestration on the Small Business Health Care Tax Credit to see if this has potential impact for you.

    tax-credit-2Small businesses and tax-exempt organizations may be eligible for a valuable tax credit – the Small Business Health Care Tax Credit. The credit applies to small employers who offer health insurance coverage for the first time or maintain coverage they already have, and is specifically targeted for those with low- and moderate-income workers. In general, the credit is available to small employers and tax-exempt organizations that pay at least half the cost of single coverage for their employees.

    If you’re an employer who may be eligible for the Small Business Health Care Tax Credit, you can use the Small Business Health Care Tax Credit Estimator. The credit is designed to encourage small businesses to offer health insurance coverage for the first time or maintain coverage they already have. For some employers and tax-exempt organizations, this could save thousands of dollars by providing a credit against income tax (a refundable credit for certain tax-exempt organizations).

    For tax years 2010 through 2013, small businesses can claim up to 35 percent, and tax-exempt organizations can claim up to 25 percent. For tax years 2014 and later, there are changes to the credit.

    • Small businesses can claim up to 50 percent and tax-exempt organizations up to 35 percent.
    • You must purchase insurance for your employees through the Small Business Health Options (SHOP) Marketplace.
    • The credit is only available to you for two consecutive years.

    This tax credit is included in the Patient Protection and Affordable Care Act approved by Congress in early 2010, and signed into law by President Barack Obama. This credit is one of the first provisions of the bill to go into effect. Eligible small businesses and tax-exempt organizations can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011.

     

    Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

    Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Make Sure You’re Informed About the Earned Income Tax Credit

Westchester NY accountant Paul Herman has all the answers to your personal finance questions! 

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low to moderate income-earning individuals and families. If you qualify, the credit could be a maximum amount of up to $6,044 in 2013. This means you could pay less or no federal tax or even get a refund.

The EITC is based on your earned income and whether or not there are qualifying children in your household. You must file a tax return to claim the EITC and if you have children, they must meet the relationship, age and residency requirements.

What is the EITC?

You may qualify for the EITC if you worked any part of last year and made less than $51,000 in 2013.

Who is eligible for the EITC?

If you were employed for at least part of 2013, you may be eligible for the EITC based on these general requirements:

  • You earned less than $14,340 ($19,680 if married filing jointly) and did not have any qualifying children
  • You earned less than $37,870 ($43,210 if married filing jointly) and have one qualifying child (See Who is a Qualifying Child Below)
  • You earned less than $43,038 ($48,378 if married filing jointly) and have two qualifying children
  • You earned less than $46,227 ($51,567 if married filing jointly) and have three or more qualifying children
Note: The Tax Relief and Job Creation Act signed into law December of 2010 provides a temporary increase in EITC and expands the credit for workers with three or more qualifying children. These changes are temporary and apply to 2009, 2010, 2011, 2012 and 2013 tax years.

In addition you must meet a few basic rules:

  • You must have a valid Social Security number.
  • You must have earned income from employment or from self-employment.
  • Your filing status cannot be married, filing separately.
  • You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
  • You cannot be a qualifying child of another person.
  • If you do not have a qualifying child, you must: be age 25 but under 65 at the end of the year, live in the United States for more than half the year, and not qualify as a dependent of another person.
  • You cannot file Form 2555 or 2555-EZ (related to foreign earn income).
  • Your investment income must be $3,300 or less.

There are Special EITC Rules for:

  • A member of the military,
  • A minister or member of the clergy,
  • Impacted by disasters, or
  • Receiving disability benefits or have a qualifying child with a disability.

Tax Year 2013 Maximum Credit

  • $6,044 with three or more qualifying children
  • $5,372 with two qualifying children
  • $3,250 with one qualifying child
  • $487 with no qualifying children

Does my child qualify for the EITC?

To determine if your child is a qualifying child, review the relationship, age and residency qualifications listed below:

Relationship
To be your qualifying child, a child must be your:

  • Son, daughter, adopted child, stepchild, eligible foster child, or a descendant of any of them, or
  • Brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew).

Definitions to clarify the relationship test

  • Adopted child: An adopted child is always treated as your own child. The term “adopted child” includes a child who was lawfully placed with you for legal adoption.
  • Eligible Foster Child: A person is your eligible foster child if the child is placed with you by an authorized placement agency or by judgment, decree or other court order.

Age
Your child must be:

  • Under age 19 at the end of 2013,  or
  • A full-time student under age 24 at the end of 2013, or
  • At the end of the filing year, you child was permanently and totally disabled, regardless of age.
  • To be a qualifying child for tax year 2013, the child must be younger than you.

Joint Return
Your child must not file a joint return for 2013 or is filing a joint return for 2013 only as a claim for refund.

Residency
Your child must have lived with you in the United States for more than half of 2013.

Note: There are certain restrictions if more than one person qualifies for the EITC using the same child or if your qualifying child is married. Publication 596, Earned Income Tax Credit, explains these special circumstances. 

Additional Tax Credits

  • Child and Dependent Care Credit – If you paid someone to care for a child or a dependent so you could work, you may be able to reduce your federal income tax. See Publication 503,Child and Dependent Care Expenses.
  • Child Tax Credit – You may qualify for this credit if your child meets the criteria outlined in Publication 972Child Tax Credit.

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

American Opportunity Credit Helps Pay for First Four Years of College

College Students May be Eligible for Tax Breaks According to Scarsdale CPA

The American Opportunity Tax Credit can help college students save big bucks!

Scarsdale CPA Paul Herman of Herman & Company CPA’s has all the answers to your personal finance questions!

More parents and students can use a federal education credit to offset part of the cost of college under the  American Opportunity Credit. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

In many cases, the American Opportunity Credit offers greater tax savings than existing education tax breaks. Here are some of its key features:

  • Tuition, related fees and required course materials, such as books, generally qualify. In the past, books usually were not eligible for education-related credits and deductions.
  • The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
  • The full credit is available for taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less ($160,000 or less for filers of a joint return). The credit is reduced or eliminated for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and lifetime learning credits.
  • Forty percent of the American Opportunity Credit is refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit to people who owe no tax. The refundable portion of the credit is not available to any student whose investment income is taxed, or may be taxed, at the parent’s rate, commonly referred to as the kiddie tax. See IRS Publication 929, Tax Rules for Children and Dependents, for details.

Though most taxpayers who pay for post-secondary education qualify for the American Opportunity Credit, some do not. The limitations include a married person filing a separate return, regardless of income, joint filers whose MAGI is $180,000 or more and, finally, single taxpayers, heads of household and some widows and widowers whose MAGI is $90,000 or more.

There are some post-secondary education expenses that do not qualify for the American Opportunity Credit. They include expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college. That’s because the credit is only allowed for the first four years of a post-secondary education.

Students with more than four years of post-secondary education still qualify for the lifetime learning credit and the tuition and fees deduction.

For details on these and other education-related tax benefits, please contact us or see IRS Publication 970, Tax Benefits for Education.

EITC and Other Tax Credits: Are You Eligible?

Westchester CPA Tax Tips

Earned Income Tax Credit can put extra money in your pocket this tax season if you qualify.

Westchester tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions!

The Earned Income Tax Credit (EITC) is for working individuals who do not earn high incomes. Taxpayers who qualify and claim the credit could pay less or no federal tax, or even get a tax refund. However, the IRS estimates that 25% of those who qualify don’t claim the credit and advises taxpayers to consider claiming tax credits i.e., a dollar-for-dollar reduction of taxes owed for which they might be eligible.

Some of the credits taxpayers could be eligible to claim include:

Earned Income Tax Credit (EITC): A refundable credit for low-income working individuals and families. Income and family size determine the EITC amount. If the EITC exceeds the amount of taxes owed, those who claim and qualify for the credit receive a tax refund. See IRS Publication 596, Earned Income Credit (EIC) or use the EITC Assistant to see if you qualify.

Child Tax Credit: For people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child and it can be claimed in addition to the credit for child and dependent care expenses. See Pub. 972, Child Tax Credit.

Child and Dependent Care Credit: For expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work. The amount of qualifying expenses is limited and the credit is a percentage of those expenses. See Pub. 503, Child and Dependent Care Expenses.

Adoption Credit: A tax credit of up to $13,170 can be taken for qualifying expenses paid to adopt an eligible child. See Pub. 968, Tax Benefits for Adoption.

Credit for the Elderly and Disabled: Available to individuals who are either age 65+ or under age 65 and retired on permanent and total disability, and who are citizens or residents. Income limitations apply. See Pub. 524, Credit for the Elderly or the Disabled.

Education Credits (Two Available): For those who pay higher education costs.  The American Opportunity Credit (formerly the Hope Credit) is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on a tax return.  The Lifetime Learning Credit is available for all post-secondary education for an unlimited number of years. A taxpayer cannot claim both credits for the same student in one year. See Publication 970, Tax Benefits for Education.

Retirement Savings Contribution Credit: A credit for a percentage of qualified retirement savings contributions, such as contributions to a traditional or Roth IRA or salary reduction contributions to a SEP or SIMPLE plan. To be eligible, you must be at least age 18 at the end of the year and not a student or an individual for whom someone else claims a personal exemption. Also, your adjusted gross income (AGI) must be below a certain amount. See chapter four in Publication 590, Individual Retirement Arrangements (IRAs).

In addition to those listed here, other credits are available to eligible taxpayers. Please contact Westchester CPA Paul Herman so we may asses your specific situation, and offer advice on the best way to claim your credits.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.