US Government Acknowledges Tax Credits Are Confusing and Difficult

This is one of those bits of news that engenders two distinct and seemingly incongruous reactions. The first is, "Well, duh!" Of course understanding and complying with the IRS vast number of rules and regulations. The other reaction is complete amazement that the tax collecting agency is actually acknowledging that the directions and regulations for at least one particular tax credit are confusing and could have bee presented in a clearer way.

The credit in question is the Hybrid Vehicle Tax Credit. The credit, which is designed to defray some of the cost of the more expensive hybrid technology and encourage growth of the industry, is different for each model and year of production and reduces each year of ownership. Also, neither the dealership that sells the car nor the manufacturer are obligated to provide the taxpayer with any information leaving up to her to research and determine the amount of the credit.

It's easy to see how this whole mess could get confusing. And the Treasury Inspector General for Tax Administration recently did a study where it was determined that the IRS might have done a better job setting the whole thing up. You can read all about it in the report The Complexity of the Law Makes Administering the Alternative Motor Vehicle Credit Difficult.

Hybrid Vehicle Tax Credit

Buy a car, save the planet, right? Political concerns aside everyone can agree that spewing a little less carbon into the atmosphere is a good thing. Even the IRS agrees with that. In fact they offer a tax credit for buying a hybrid. But don’t go thinking that claiming this credit is going to be a simple process. Attempting to claim it isn’t that hard, but actually receiving it may seem to be as much a matter of luck as it is anything else. That isn’t entirely the case; knowing how the IRS arrives at the amount of the credit will go a long way toward increasing it.

It is more complicated than simply subtracting the standard hybrid fuel deduction from the total tax. In the first place, there is no standard deduction; it is a credit that is calculated based on a number of complicating factors. In an article recently published at IRS Problems Resolved the qualifying factors for this deduction are described. The article can be found here.

Though most car buyers are probably considering more than the possible tax credits when they choose alternative vehicles it’s good to know that the government is willing to help a little. But it takes more than simply choosing a hybrid to get the maximum tax benefit. Knowing which models will bring the most benefit is important and can save the taxpayer quite a bit of money come tax season. So check out Hybrid Vehicle Tax Credit.