Four Ways a Car Can Drive Down Your Taxes

Although the government funded Cash for Clunkers programs ended in the fall, which provided up to $4,500 in trade assistance for consumers agreeing to purchase a fuel-efficient new vehicle, Uncle Sam is still offering tax incentives for both new (and used) vehicle buyers, as long as they can show proof they took delivery of a vehicle by December 31, 2009. To help navigate the tax savings, we've found four ways you can drive down your taxes for the year.

For one, if you're a small business owner who purchase a new or pre-owned vehicle with a Gross Vehicle Weight Rating (GVWR) of over 6,000 pounds, you may qualify for a one-time $25,000 write-off. Ironically, this incentive is counter intuitive the government's Cash for Clunkers program, which was designed to encourage fuel-efficiency. After all incentives, if you're buying new (or pre-owned), the vehicle final drive out cost must be $25,000 in order to qualify for the small business tax incentive. Furthermore, the vehicle must be used primarily for business purposes.

For instance, purchasing a new or pre-owned $55,000 GMC Denali Yukon, you can write-off a whopping $36,000 in the first year on your taxes. This amount includes the $25,000 one-time small business tax deduction and the standard yearly 20 percent tax deduction. Your tax consultant can help you determine what kind of impact this information could have on your individual business situation. Here are some of the vehicles which will qualify for the program:

• BMW X5
• Cadillac Escalade
• Chevy Astro
• Chevy Avalanche
• Chevy Express
• Chevy Silverado
• Chevy Suburban
• Chevy Tahoe
• Dodge Durango
• Dodge Ram Van
• Dodge Ram Maxi Van
• Dodge Ram Wagon
• Dodge Ram 1500
• Dodge Ram 2500
• Dodge Ram 3500
• Ford Excursion
• Ford Expedition
• Ford Econoline E-150
• Ford Econoline E-250
• Ford Econoline E-350
• Ford F-150
• Ford F-250
• Ford F-350
• GMC Yukon
• GMC Safari
• GMC Savana
• GMC Sierra
• GMC Sierra Denali
• Hummer H1, H2
• Land Rover Discovery
• Land Rover Range Rover
• Lexus LX470
• Lincoln Blackwood
• Lincoln Navigator
• Mercedes G500
• Mercedes ML 320
• Mercedes ML 500
• Mercedes ML55 AMG
• Toyota Land Cruiser
• Toyota Sequoia
• Toyota Tundra

And, if you're not a small business owner, you're eligible for the American Recovery and Reinvestment Act, which permits taxpayers to take a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. The deduction is available on new vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009. In states that don't have a sales tax, the law provides a deduction for other taxes or fees paid. This deduction is available whether or not a taxpayer itemizes deductions on Schedule A.

The deduction is limited to the taxes and fees paid on up to $49,500 of the purchase price of a new vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

Added to that, if you purchased a brand new hybrid or diesel this year, you may qualify for a tax credit, too. Not all hybrids and diesels may qualify. Like Toyota (Lexus) and Honda, Ford will become the next automaker to be ineligible for the tax credit, after April 2010. Thus, if you're interested in taking advantage of tax savings you better make a move on a Ford (Mercury) soon. However, since the Mazda hybrids are similar to Ford's, you can switch brands and still take advantage of their hybrid tax credits.

Finally, since this is the holiday season, you're probably still in the spirit of giving. If you didn't take advantage of the government's Cash for Clunkers incentive, you can donate your old clunker to a charitable organization and write the vehicle off on your taxes. The charitable organization will provide you with a receipt at the time of donation for you to apply to your 2010 taxes.

Make sure you verify the above information with your tax consultant to determine your actual savings.