Finance Tax Time

As 2006 rolls along, the IRS is in the process of issuing tax credit amounts to particular hybrid vehicles. The agency has just issued the amounts for a number of GM vehicles.

As part of the Energy Policy Act of 2005, the tax advantages of owning a hybrid vehicle have been seriously upgraded. Prior to the Act, a person that purchased such a vehicle could claim a tax deduction of up to $2,000. While this was nice, the new Act changed the deduction into a tax credit. Tax credits are far better than tax deductions because they are reduced directly from the tax you owe, not your gross income.

Through 2006, the IRS is working its way through various hybrid models and issuing the amount of tax credit that can be claimed for each. Makes include Honda, Toyota, Ford, Lexus and just about every vehicle in the class. On July 11, 2006, the IRS issued a slew of tax credit determinations for hybrid trucks made by General Motors.

If you purchase a new GM hybrid truck, you will now be able to claim a tax credit on your tax returns. The models and amount of the tax credit that can be claimed are as follows:

1. $650 dollars for 2006 GMC Sierra (4WD) hybrid pickup truck.

2. $650 dollars for 2007 GMC Sierra (4WD) hybrid pickup truck.

3. $650 dollars for 2006 Chevrolet Silverado (4WD) hybrid pickup truck.

4. $650 dollars for 2007 Chevrolet Silverado (4WD) hybrid pickup truck.

5. $250 dollars for 2006 GMC Sierra (2WD) hybrid pickup truck.

6. $250 dollars for 2007 GMC Sierra (2WD) hybrid pickup truck.

7. $250 dollars for 2006 Chevrolet Silverado (2WD) hybrid pickup truck.

8. $250 dollars for 2007 Chevrolet Silverado (2WD) hybrid pick up truck.

To claim the tax credit, you must purchase any of the above vehicles from a dealer after January 1, 2006. The vehicle must also be new, not used. As an aside, the tax credit amount will drop after the 60,000th model has been sold, so you may want to buy now if you are considering any of these vehicles.

Tax credits for purchasing a hybrid are a tremendous benefit when it comes to filing your returns. Since the tax credit amount is reduced directly from the amount you owe, it can make for some very nice refunds.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

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Many companies offer their employees cash incentives to undertake certain actions such as buying a hybrid car. It is important to remember that such situations have tax consequences

Employer Cash Incentives To Employees For Hybrids

Purchasing a hybrid vehicle makes sense on many fronts. It is a financial windfall given tax credits provided under the Energy Policy Act of 2005. Driving a hybrid has the additional financial advantage that one uses less gas, thus saving on fuel prices. Finally, hybrids are much easier on the environment given the fact they produce less pollution than traditional fossil fuel vehicles.

As is often the case, businesses tend to take action to promote socially positive steps before the federal government. Whether it is promoting healthier lifestyles or, in this case, a more green lifestyle, businesses almost always lead the way. The situation with hybrid cars is no different.

Many businesses are providing financial incentives to employees that purchase hybrid vehicles. These incentives can be significant. They often are offered in the form of cash payments, contributions to retirement plans and even stock options. As you might image, employees are taking advantage of the situation.

There is, however, one cautionary not for both businesses and employees when it comes to incentives for hybrids. The act of transferring wealth to the employees is considered a taxable event. Simply put, the employees must claim the amount of the incentive as income when reporting taxes. The employer is responsible for reporting said income as part of the reported W-2 wages and the employee must pay the relevant taxes.

There is one exception to this taxable income rule. If the employer is actually producing the product in question, then no taxable event occurs. In the case of the hybrid incentives, this exception would obviously only apply to employees of vehicle manufactures actually building the hybrids, to wit, Honda, Toyota, Ford, GM and so on.

The decision by many companies to offer incentives to motivate employees to purchase hybrids is laudable. It is important, however, that both employers and employees understand the tax consequences.

Richard A. Chapo is with BusinessTaxRecovery.com - providing tax information.

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Prior to January 1, 2006, you were restricted to claiming a $2,000 tax deduction if you purchased a hybrid car. Now you can claim a tax credit, which is much more valuable.

Conspiracy theorists often offer rather exotic arguments about how the government tries to control us. When it comes to taxes, they are absolutely correct. Both federal and state governments try to influence our behavior by levying or reducing taxes. If the government wants to promote something, it gives you tax breaks if you do it. If the government wants to discourage something, it loads the product or service up with taxes.

If you have filled up your car at the pump in the last week, you know gas prices are out of control. Despite our wailing, they politicians really cannot do that much since we are dependent on foreign oil sources. They have, however, taken one long-term approach by promoting the purchase of hybrid vehicles.

Prior to 2006, the government provided all taxpayers that purchased a new hybrid with a healthy $2,000 tax deduction. With the recent passage of the Bush Energy Act, the government has made it foolish NOT to purchase a hybrid. It did this by changing the tax deduction into a tax credit.

The IRS is now allowed to set tax credit amounts applicable to hybrid purchases so long as the amount does not exceed $3,400. In regard to the 2007 Lexus GS 450 hybrid, it has just done so. If you purchase a new 2007 Lexus GS 450 hybrid after January 1, 2006, you can claim a tax credit of $1,550.

You may think $1,550 is nice, but not overly impressive. How wrong you are! Unlike a tax deduction, a tax credit is applied directly to the amount of taxes you owe. Assume you determine you owe $6,500 when you prepare your 2006 taxes next year. Instead of writing a check to the IRS, you will first deduct your tax credit from the amount you owe giving you a bill of 4,950. This dollar for dollar reduction in your tax liability is what makes tax credits so great.

As with all hybrid tax credits, they scale down as more cars are sold. Make sure to ask your accountant or dealer the current tax credit amount when you make your purchase.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

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