April 15 is driven deeply into our minds. However, for those of you who have side businesses or are newly self employed, it’s easy to forget the dates throughout the year when estimated tax payments are due. I’m guilty of forgetting just last June. So here’s a reminder, for you (and me!) to pay our estimated tax payment tomorrow!

Estimated Tax Payment Due Dates

One of the reasons it’s so hard to remember the quarterly estimated tax payment due dates…. they aren’t spread out evenly throughout the year. The due dates are as follows:

• First Quarter Payment Due: April 15
• Second Quarter Payment Due: June 15
• Third Quarter Payment Due: September 15
• Fourth Quarter Payment Due: January 15

You can see the all the 2009 Tax Dates for other due dates throughout the year.

Estimated Tax Payment Details

Not sure if you have to make estimated tax payments or how to make them? Check out Estimated Tax Payments for details.

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Is cash for clunkers taxable? Yes, no, maybe. Even though the Cash for Clunkers program ended, the cash for clunkers tax is generating debate.

The cash for clunkers tax is confusing because people are mixing up three kinds of taxes: federal income tax, state income tax, and state sales tax. On top of that, it would be way too easy if all the states had the same rules. Let’s sort through the tax on cash for clunkers.

Federal Income Tax

Is the cash for clunkers voucher subject to federal income tax? No. The official government cash for clunkers site states:

The CARS Act expressly provides that the credit is not income for the consumer.

State Sales Tax

Is cash for clunkers subject to state sales taxes? Maybe. It depends on where you live.

For my fellow Wisconsinites, we don’t have to pay sales tax. The Sales Tax Connection is keeping an updated list of states at Cash For Clunkers – Taxable or Not?

State Income Tax

Is the cash for clunkers program subject to state income taxes? Hmmm. Here’s where it gets a little fuzzy.

Of course it will depend on where you live, as each state has their own income tax laws. Many states base taxable income on the federal income, which we already stated will not include the cash for clunkers. The cash for clunkers program also states that the voucher will be excluded as income for all state benefit or assistance programs.

While we could assume that those rules lead us to the conclusion that the program is not subject to state income tax, I’m never one to assume anything when it comes to taxes!

To help us draw the correct conclusion, some states are explicitly stating that cash for clunkers will not be taxable income in their states, including Arizona and Nebraska.

Unfortunately, I haven’t found anywhere that is consolidating the answers to the state income tax question. If you find a source, let me know!

More Cash for Clunkers tax information:

• Cash for Clunker Payments and Tax Rules
• Cash for Clunkers Tax
• Cash for Clunkers Tax Rules

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“Cash for Clunkers” Program

As many of you may have heard, the government recently released the rules for its Car Allowance Rebate System (C.A.R.S.), also known as “Cash for Clunkers.”

The program’s goal is two-fold: to get older, less fuel-efficient cars off the road and 2) to encourage sales and leases of new cars in order to stimulate the struggling auto industry. Cash for Clunkers does this by allowing auto dealerships to offer a credit towards a new car to owners who turn in their “clunkers.”

Cash for Clunkers Features

• Fuel Economy: To qualify for the credit, your “clunker” has to have a combined fuel economy of 18 mpg or less and your new vehicle must get 22 mpg or better. You can calculate the fuel economies of both vehicles here. Remember: the comparison should be done between the “combined” values.
• Rebate Amount: The credit amount is either $3,500 or $4,500. It is calculated based on the difference in fuel economy between the “clunker” and the new vehicle. For cars (not trucks), if the new vehicle is 4-9 mpg better, the credit is $3,500. If it is 10 or more mpg better, the credit is $4,500.
• Your Vehicle: To see if your vehicle qualifies, you can use the Cash for Clunkers calculator or check the eligible vehicle trade in list.

More Details

Timeline: The program applies to trades that occur July 1, 2009 or later so if you traded in a car in July and didn’t receive the credit, you may still be eligible. It ends November 1, 2009, or when the funds are exhausted, whichever comes first*.

Combining Credits: You can combine this rebate with other dealer and government incentives. The Cash for Clunkers credit can be used in addition to any other rebates that the dealerships normally offers, and can’t be used by dealers as a replacement for their usual incentives. It can also be combined with government tax credits, like the one for hybrid cars.

Taxes: This credit will not be subject to income tax. However, whether it is subject to sales or local tax or not will vary by area.

What happens to my “clunker?” The Cash for Clunkers program requires that all “clunkers” be destroyed so that they can’t be resold, though some parts may be.

Is this Program for Me?

The Cash for Clunkers program should help the United States encourage automakers and consumers to move towards more fuel-efficient vehicles. For the right consumers, it can be a great way to save money on a new vehicle purchase they were going to make anyway. However, don’t let this credit sidetrack you from still doing your research and properly negotiating the best price for your car.

In addition, those who aren’t already in the market for a new car shouldn’t necessarily now make a purchase because of this program. A car may be worth more in a private party sale or worth more to its owner than cash. For example, a 2002 Ford Explorer with 75k miles could sell for about $6k on Craigslist and, if in good shape, should last another 3-5 years without many major repairs. In either case, its value to its owner is worth more than the government’s $4,500, especially if he makes an effort to improve its fuel efficiency.

If you’re ready to buy, be sure to get a free copy of your credit report before applying for a car loan.

Will it Last?

*Because of the popularity of Cash for Clunkers program, there was mention last week that the program had used up all the funds; then the House voted to inject an additional $2 billion to revive the program. No matter what Congress does, if you make a purchase, the rebate will be honored through Tuesday, August, 4.

For more information, see the Cash for Clunkers FAQ.

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The $8,000 First Time Home Buyer Tax Credit just got even better! You can now get an advance on your $8,000 tax credit at the time you purchase your home.

It allows buyers to use the tax credit for closing costs and additional down payments instead of waiting until you file your tax return. It’s great news for those of you who were planning to buy a home by November 30, 2009.

Tax Credit Advance

The advance on the tax credit will be for buyers who use FHA loans. Borrowers will also be required to make a 3.5% down payment. Borrowers who work with state and local housing finance agencies, government agencies and approved nonprofit groups are also eligible.

Cost of Tax Credit Advance

Being able to access the tax credit ahead of time, is a great idea, but it isn’t free. The Federal Housing Commissioner released a Mortgagee Letter 2009-15 which establishes a maximum on the interest rates and fees:

Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the home buyer.

In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)

Zero Down Payment?

Buyers will not be able to use the advance to fund their entire down payment. The FHA loans will still require that the borrower comes up with the 3.5% down payment from their own funds. The tax credit advance can then be applied for a larger down payment in addition to the 3.5%, if the buyer chooses.

First Time Home Buyer Details

For more information on the first time home buyer credit, see the First Time Home Buyer Tax Credit or First Time Home Buyer Tax Questions. The credit can be claimed on IRS Form 5405.

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The economic stimulus plan lifted the maximums on the solar energy tax credits, making the purchase of solar panels very appealing.

Since we decided not to downsize and stay in our house long term, we’re considering installing solar panels this summer.

I thought it would be fitting to celebrate Earth Day with some details about the financial considerations behind installing solar panels!

Solar Energy Tax Credits

Federal Tax Credits. The solar tax credit is now a 30% tax credit on the installed price of solar panels and solar water heaters. Beginning in 2009, there is no maximum on the tax credit (in 2008 there was a $2,000 maximum).

The energy efficient tax credits detail all the available products and credits. In addition, if you have a home business, you can qualify for accelerated depreciation and a 50% bonus depreciation for the portion of your home that is devoted to your home office.

State Tax Benefits. You can use the map from the database of state incentives to see if your state offers grants, rebates, or tax incentives. Our state offers a cash back rewards program of 25% of the cost, with a $35,000 maximum.

Additional Financial Incentives

Beyond the tax benefits, there are multiple programs offered by the state, electric company, and government programs. Here are some examples of the ones in our area.

• Property Tax Exemptions. Our state will exempt the solar system from property tax, which will be a nice break, since we are in a very high property tax area.
• Energy Star Home. Because our house was green-built when we built 3 years ago, and qualifies as an energy star home, we could qualify for an additional $500 bonus.
• Electric Company Incentives. Our electric company offers tier rates and time of use metering, which help increase the savings by going to solar power.
• Selling Excess Energy. In addition, our electric company offers net-metering, which will allow us to sell our excess energy!

Solar Power Calculators

It’s hard to figure out the total cost of installing the solar panels, since there are so many tax credits and financial incentives. When figuring the cost, look at the total cost of the system, less the tax savings, and financial incentives. Divide the cost by the monthly savings to determine your break even points.

There are various calculators that help you determine the overall cost. You’ll want to get your average kilowatt hours of electricity from your electric company before you start. Here are some that I liked:

• My solar estimator. This calculator, which is my favorite, gives you a solar rating, along with an estimate, and a breakdown of the costs, incentives, cash frow and break even point.
• Find Solar. Another calculator that I liked, which is good if you want a really quick estimate.
• RoofRay This one is pretty neat. It uses Google maps to draw the solar panels on your house. Unfortunately, our house doesn’t show up on the Google maps yet; but it was fun to play with!

Solar Power Quotes

We’re planning to obtain at least 3 quotes to compare the cost for the system. We’re also considering a site assessment, which is an independent third party consultant to help us analyze our needs and recommend a correct size and site plan.

Action Plan

We have more research to do before we jump right in. But, the initial break even point of 8 years from the solar estimator calculator was promising. And the additional financial incentives from the electric company and being able to sell excess energy will bring it down even further.

We need to find out the regulations of our homeowners association, and we need to have a site assessment done. In addition, our state requires that we submit an application before we begin if we want to use the 25% rebate program. We also have to apply with our electric company because we plan to connect to the utility grid to sell our excess electricity.

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