Yes, that $4,500 you received for that clunker is taxable income. This is where it gets interesting in that the "cash for clunkers" is not a trade-in. It is a $4,500 check from the government. Therefore, when you go to register that vehicle, your sales tax is calculated on the full vehicle price (effectively paying sales tax on the $4,500). Plus, if your state has an income tax, you will probably wind up paying tax again, because the state will count the $4,500 as income for state income tax purposes.
Where is all the transparency and full disclosure that was going to happen when we had a changing of the guard in Washington, DC? Since this is a "family" oriented blog, I will not say what I really want to say. But, I think you get my drift!
And, you thought there was such a thing as free cash! Just like that 1099 you are going to receive for selling your house short. (See yesterday's post.)
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