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Stimulus Bill 2.0 & Taxpayers Tax Credits and more – Part 2

April 15th, 2009 Vijaianand

Last week, I started the blog series on Stimulus 2.0 Tax credits. I talked about the first and foremost Tax credit which tax payers should take advantage in their 2009 and 2010 paychecks. Next is the Home and Car Buyer Tax credit.

Home Buyers Tax Credit

To boost the housing and auto industry, this 2nd stimulus package has come out with modest tax break for New home buyers and car buyers.

If you’re in the market for a new car or your first house, the compromise stimulus bill offers modest tax breaks for both kinds of purchases.


First-time home buyers would receive an $8,000 tax credit or upto 10% of their home value, and they wouldn’t have to repay the government later as is required for the last stimulus bill $7,500 credit if they stay in that home for 36 months at least. An earlier Senate proposal would have provided all home buyers with a $15,000 credit which was later cut down to $8000.


According Mark Zandi of Moody’s Economy.com to USATODAY.COM, The home buyer tax credit is a plus for the housing market, but only a small plus.”. “The credit … covers only a part of the down payment needed to make a purchase.


The housing market will take any help it can get, but it needs more.” Other economists point out that the tax credit will still provide a mild jolt to the market by encouraging home purchases, which in turn should help curb the rapid rate of home price declines. It is expected to induce more home sales in 2009 and this will be an important support for the housing market and the housing industry. It should also buffer the rate of decline of home prices.


Vijai’s 2cents:


A tricky tax credit to tackle the new home supply and demand problem in a way to stabilize the housing industry. As the demand increase and supply decrease, the price equilibrium should shift upwards stabilizing the drop in home sales. It is a good tax credit to help many tax payers who been thinking about getting a new home. People who have a home in their to get list is now thinking about really getting one with free money coming from government. It comes with few caveats.


Caveats:

1. It is either $8000 or 10% of your home purchase price. If you buy a home for the value $100k, you can only claim the maximum of $8000.

2. It is only applicable for first time home buyers whether you are single or married who never owned a primary residence in the past 36 months.
 
3. Only homes purchased on or after January 1, 2009 and before December 1, 2009 are eligible.

4.The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return.

5. It is a tax credit you can either claim this in 2008 return by filing an extension if you already filed 2008 return or you can file in 2009 tax return.


I see lot of people wanting to use this $8000 asking for suggestions in many finance forums. I am telling them, Don’t rush it. If you are getting something for free, it doesn’t mean you have to risk your financial health. It is similar to having a pill for a temporary relief without considering the longer term side effects.


Please don’t rush into getting a home whether are qualified easily with a good credit score or not. Take your time, analyze your financial situation to decide whether you really can afford it in a long run.

Ask yourself some practical questions like,


1. Can I pay monthly mortgage and yearly insurance?
2. Do I have a steady job or expecting lay off?
3. Do I have a 3-6 months worth of funds to cover my expenses including mortgage?
4. am I ready to spend some extra dollars every month for home maintenance?


If you can answer these questions in a truthful way without convincing yourself, you might be able to use this credit to get a good home and help the economy.

Check out for more details at http://www.federalhousingtaxcredit.com/

Car Buyers Tax Credit


This bill would allow new car buyers to deduct the purchase’s sales tax from taxable income.  But Ever-increasing credit score requirements by lenders, and slipping consumer credit ratings take many potential buyers out of the pool as per many analyst.


Vijai’s 2cents:

We all know US auto industry is a total mess. General Motors, largest of all in the verge of announcing bankruptcy and becoming Government Motors. With this bill,  Government is hoping to help the auto industry in large by increasing the sales.

Let us say, if you are getting new car which is $25,000 and trading in your old own for $10,000. Most states typically tax the difference of price which is $15,000. A 8.25%  sales tax in the Houston, Texas would be $1238. It is amount that would be reduced in your taxable income. It is similar to $1238 refund from IRS which is a good junk of money.

Many of you might ask,  we already have this provision to deduct our sales taxes in Itemized deductions. What is the difference now? That is true. Texas and few others states don’t have income tax and we have the option to get our sales taxes deduced from Itemized deductions Sch – A but other state residents most likely use to deduct their Income taxes. But this bill is different. It is a tax credit not tax deduction and it is available for all the states and will reduce the taxable income. Check out the previous post to understand the difference between tax credit and tax deduction.

But real question, how many people are going to buy US made cars compared to foreign cars. I am not sure how this will really help US auto makers but it will surely help your pockets to put some money back. If you are thinking about getting a new car, this is the right time. You also don’t have to worry about getting a hybrid car to avail this credit because that is  totally different credit.

We will see Energy Tax credit and others in the next blog post.


Some content are taken and modified from usatoday.com

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Stimulus Bill 2.0 & Taxpayers Tax Credits and more – Part 1

April 7th, 2009 Vijaianand

America is been critised for all the recent bailouts to banks, insurance companies and auto makers. It is even called as Bailout nation these days. The 2 stimulus bills passed totalling apx 1.5 trillion feeding the bailouts are expected to tackle the malice created by subprime crisis. 

The recent stimulus package of 787 billions dollars which is in works is hope to slowly boost the economy in many different ways as per obama administration. Financial analyst say it will take atleast a year or two to know whether this new package really helped to stimulate the economy or not. 


The major diffference between the last stimulus package compared to this new one is gradual and slow infusion of money to the economy. Because Bush adminstration failed to boost economy by sending tax rebate cheques to tax payers and it really didn’t help. So this new stimulus bill will not quickly solve the historic problems besetting the economy, but it could reduce the damage by adding jobs, infusing money gradually thru tax credits and same time providing relief for the unemployed and the uninsured.

Lets first understand what is Tax credit and see what are various tax credits which many of us can take advantage from this stimulus package 2.0

What is a Tax credit?

A tax credit is a dollar for dollar reduction in your income taxes. If you have a $1000 tax credit, you will pay $1000 less tax that year regardless of your tax bracket. A good example is the hybrid vehicle credit, if you purchase one you can deduct the amount directly from the taxes you owe. If you owe $2500 US Dollars in taxes and you have a $2000 USD tax credit, you subtract that credit directly from $2500 USD, reducing total taxes owed to $500 USD.


Difference btw Tax Credit and Tax Deduction

It’s important to understand the distinctions between a tax credit and a tax deduction, since they are two different ways of reducing the total taxes you will pay. A tax credit lowers your tax bill dollar for dollar. A deduction shaves money off your taxable income, so the value depends on your tax bracket. If you’re in the 25% bracket, a $1,000 deduction lowers your tax bill by $250. But a $1,000 credit lowers the bill by the full $1,000, no matter in which bracket you are.


What are various Tax credits announced in Stimulus 2.0?

1. New Tax Credit for tax payers upto $800
2. Firsttime Homebuyer Tax credit
3. Energy Tax credit and
4. Extended Unemployment Benefit


1. From Paycheck: A $400 to $800 credit for many taxpayers


A key element of the stimulus bill would provide most Americans with a tax credit of $400, or $800 for married couples. The tax credit would phase out for single taxpayers with adjusted gross incomes of $75,000 to $90,000 and married couples with AGI of $150,000 to $190,000.


The tax credit would increase the average taxpayer’s paycheck by about $8 a week, prompting some to question whether it will do much to stimulate consumer spending. But for a single worker, the credit is the equivalent of a $500 salary increase, after taxes. In this economy, it is tough to get a hike and it will be even ridiculus to ask for one when lot of people don’t even have a job.

Instead of receiving a check from the government, most single taxpayers will see an adjustment to their tax withholding in their paychecks in 2009 and 2010, giving them about $45 extra per month for the rest of this year (married workers will receive an extra $65). If you’re self-employed, you can adjust your quarterly tax payments to benefit from the tax credit. Then you will claim the credit when you file your 2009 tax return next spring, bringing your tax bill in line with your reduced payments.

See Kiplinger article on How the Self-Employed Get Stimulus Money for the details.

Retirees who receive Social Security benefits and individuals on disability would receive a $250 tax credit. Because these individuals typically don’t have withholding, they’ll likely receive a check.

Vijai’s 2Cents: Don’t expect a rebate cheque this time. If you are employed, look out for a slight increase in your paycheck for 2009 and 2010 which can total to $400 (single) or $800(married) for each year. If you are self employed like me, you can either take the qtrly cut $100(single) or $200(married) from your estimated payment.

I already reduced my estimated payment for this quarter. This way you can save that money and earn some interest. If you don’t want to have the pain, just continue pay your estimated and when you file your return take the credit as a lumpsum. This way you miss out on interest for money you could have earned which is not big with 1-2% interest in savings account these days.

I will First time home buyer credit and other tax credits in my next blog post. Keep looking…

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Part 2- Economy is so Bad. But Be Hopeful, We will Recover…

February 25th, 2009 Vijaianand

I am continuing with my last post on How bad really is economy? but with a hope for a better future. Read on…

Economy is so bad,

Millions of job losses have put many people on the road searching for any jobs to feed their families. People are now on the look out for bare minimum jobs to run their lives.  In Six flags California, they witnessed record number of turn around for theme park jobs which is really unusual. Usually teens are the only people who are intereted in the fun jobs. With record number of job losses, people with past experiences are back to get any jobs.

Recently GM announced its plans to slash 10,000 jobs all over the world and 3400 only in US. Even walmart announced is cuts in corporate HQ of about 700-800 jobs. More job cuts on the way and more struggle for many.

Economy is so bad,
Asian kids are going to Community College. This one is from Late night show by Jay Leno which meant to be funny comment.

I think its enough of facts which might be depressing to many of you. After all, they are the true facts  and we have to digest it. If you cannot realize these fact, it will be hard to focus on the future.

I am already seeing  light shining as a hope from Mr.President Obama’s speech. In his speech on Feb 24, 2009, he said  “We will rebuild, We will recover”. So let us focus towards good things which happened even at this bad time. With great hope brings better results and change expected to happen.



It is good,

To experience a recession once a while as per the economical cycle. It is a healthy for the country. I know it brings tough times to all of us which helps to bring the best out of us. Americans have seen more than this recession, we can get thru it. This also helps to standarize things, consolidate industries and sectors on mergers and take overs, it helps to show strongest candidate of companies from pack who can withstand the storm. 

It is good

After $750 billion stimulus package announced last summer, in which half of it is used to stabilize some banks, Insuance company and other company inin last 6 month. It wasn’t enough to help stop the economy blood shed pushing the country towards bad recession. So Obama government has to take the savior role and announced stimulus package 2.0 for $787 billion. It is expected to boost the economy slowly by putting the money in  various government projects like federal building, bridges, roads and schools and steadily pumping jobs by end of 2009. It is different from previous stimulus plan in a way inducing the steriods slowly to the economy for the steady growth.

It is good

We are going back to fundamentals. We are going to the basics to boost the economy instead of just sending cheques to tax payers to give a temporary kick tried by last goverment in the stimulus 1.0. This way, more jobs are expected to be created along the way and public is going to benefit out it.  It is good to see, we are going back to our old lending practices with more strigent rules and regulations to avoid a crisis like this one.

It is good

After Bernie Madoff Ponzi scheme, SEC found 4 more fraud and scams of similar type including the recent Standford Financial billion. Uprooting of these scams is good which normaly happens when the economy gets worse. It is like weeding the yard after the winter break during Spring. It is suppose to bring fresh air to start a new beginning..

It is good,

In the stimulus package, Mr.Obama has announced a Homeowner Affordability and Stabilty plan to keep more people at home by giving a second chance. In this plan, people who are at risk of losing their homes will be given opportunity by their lenders to make modification in their loans to reduce their payments. It is going to help thousands of families who are in the verge of losing their homes.

It is good

All banks are now on the road searching and recruiting customers. CITIBank recently advertised and sent out offer letters to many households with $225 gift card if you sign for all of its 3 offers or get different amounts of cards according to the offer. Many other banks are about to follow in  a way to build the confidence back and at same time build their cash reserves via customer deposits.

It is good  

Tax software companies are offering free packages and softwares to help out people to save on their cost. Tax season is almost here and about time to get some refund. Even Turbo taxes is offering free business suites to help the business people on submitting their taxes. Many companies like Tax Cut, Tax act are joining the band wagon trying to help out and also a way to recruit their future customers.

It is good,

Unemployed people are going to recieve more help on their pay check with a boost of upto $25 per pay check from the new stimulus package.

It is good,

Energy alternatives is getting some much needed attention as Obama promised moving away from the oil dependency for the better and greeny future ahead. We need to wait and see the actual plan about it.

It is so good,

To hear education is one of the high priority in Obama’s agenda. Obama also set a goal of having the highest college graduation rate in the world by 2020.

OK!! You heard all the promises, but what can you do to help?

It is a open call to all of us to rebuild America, an opportunity of life time to help recover America from Recession by doing just what you been doing always. Working hard, saving better to improve the reserves and spend wisely to getting out debt.

Noting that is easy to “become cynical and doubtful,” Obama said he has learned that “hope is found in unlikely places.” Lets all hope to see the light at the end of the tunnel very soon. I am hopeful, are you?

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