Can you afford a new car this year? If you can, you will get a tax break on the sale tax and interest payments on the vehicle.

Yesterday, February 3, 2009, the Senate approved the measure by a 71-26 margin. President Obama signaled opposition to congressional attempts to insert “buy American” provisions into the legislation, saying in one of a series of television interviews that “we can’t send a protectionist message.”

New car buyers will be able to claim an income tax deduction for sales taxes paid on new autos and interest payments on car loans. Estimates are car buyers would save $1,500 on the purchase of a $25,000 vehicle.

The measure is an attempt to get car buyers back into the showroom. The jury is out on whether it will be enough to lure Americans back.

Do you have questions about IRS Filing Status, Exemptions or Dependents?  Here are 6 of the most frequently asked questions taxpayer have about these issues.

1. How much does a student have to make before he or she has to file an income tax return?

If you are an unmarried dependent, you must file a tax return if your earned and/or unearned income exceeds certain limits.

To find these limits refer to Filing Requirements for Dependents in Publication 501, Exemptions, Standard Deduction and Filing Information.
Even if you do not have to file, you should file a federal income tax return to get money back if any of the following apply:
You had income tax withheld from your pay.
You qualify for the earned income credit.
You qualify for the additional child tax credit.

2. For head of household filing status, do you have to claim a child as a dependent to qualify?

In certain circumstances, you do not need to claim the child as a dependent to qualify for head of household filing status, such as when the qualifying child is unmarried and is your child, grandchild, stepchild, or adopted child.

3. Is there an age limit on claiming my children as dependents?

Age is a factor in the qualifying child test, but a qualifying relative can be any age.

As long as the following dependency exemption tests are met, you may claim him or her:

Qualifying child or qualifying relative test
Dependent taxpayer test
Citizenship or resident test
Joint return test

4. My wife and I are married filing separately. We have one son and we meet all of the dependency exemption tests. We contributed an equal amount to our son’s support and want to know if we both can claim him on our separate returns?

A dependency exemption may only be claimed on one return.

Since your son is a qualifying child for both of you, you and your wife can decide who will claim the child.
A multiple support declaration identifying each of the others who agreed not to claim the exemption must be attached to the return of the person claiming the exemption. Form 2120, Multiple Support Declaration, can be used for this purpose.
If you cannot agree on who will claim him refer to Tie-Breaker Rule in Publication 501, Exemptions, Standard Deduction, and Filling Information.

5. If you pay child support, are you allowed to deduct anything on your taxes or claim the child as an exemption?

Nothing can be deducted for the child support payments.

Child support payments are neither deductible by the payer nor taxable income to the payee.
You may be able to claim the child as a dependent.

The parent who the child lived with for the greater part of the year is the custodial parent. 
Generally the custodial parent is allowed to claim the exemption for the child if the other exemption tests are met.
The noncustodial parent may be allowed to claim the exemption for the child if the custodial parent signs a Form 8332 (PDF), Release of Claim to Exemption for Child of Divorced of Separated Parents, or a substantially similar statement.

6. If I claim my daughter as a dependent because she is a full-time college student, can she claim herself as a dependent when she files her return?

If you claim your daughter as a dependent on your income tax return, she cannot claim herself on her income tax return.

If an individual is filing his or her own tax return, and the individual can be claimed as a dependent on someone else’s return, the individual cannot claim his or her own personal exemption.
In this case, your daughter should check the box on her return indicating that someone else can claim her as a dependent.

Federal Tax Laws are complex and may require that you speak with a Tax Expert, CPA, go online to the irs.gov site or even speak to someone at the irs.  Here are some toll free numbers to speak with an IRS tax representative:

IRS Telephone Assistance for Individuals:
Toll-Free, 1-800-829-1040 
Hours of Operation: Monday – Friday, 7:00 a.m. – 10:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).

IRS Telephone Assistance for Businesses:
Toll-Free, 1-800-829-4933
Hours of Operation: Monday – Friday, 7:00 a.m. – 10:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).

source: irs.gov

According to Bloomberg, on average,the wealthiest Americans income doubled in the first six years of the Bush administration due to a 17.2 percent tax rate reduction.

The 17.2 percent tax rate in 2006 was the lowest since the IRS began tracking the 400 largest taxpayers in 1992, although the richest 400 Americans paid more tax on an inflation-adjusted basis than any year since 2000.

The drop from 2001’s tax rate of 22.9 percent was due largely to ex-President George W. Bush’s push to cut tax rates on most capital gains to 15 percent in 2003.

Capital gains made up 63 percent of the richest 400 Americans’ adjusted gross income in 2006, or a combined $66.1 billion, according to the data. In all, the 400 wealthiest Americans reported a combined $105.3 billion of adjusted gross income in 2006, the most recent year for which the IRS has data.

“The big explosion in income for this group is clearly on the capital gains side, although there are also sharp increases in dividend and interest income,” said Dean Baker, co-director of the Center for Economic Policy and Research in Washington.

In addition, “they are realizing more of their gains due to the lower tax rate,” Baker said.

The data show that the population of the top 400 income- earners has fluctuated over the 15 years the agency has tracked it, according to an analysis by the Washington-based Tax Foundation, a research group. Some 3,305 different taxpayers have been included at least once on the list, the Tax Foundation said. Only 27 percent of those taxpayers have appeared more than once on the list, and only about 15 percent have been on it more than twice.

Ammunition for Democrats

The data may provide ammunition for Democrats such as House Speaker Nancy Pelosi who say they intend to increase the capital gains tax rate even as the credit crunch roils markets and is producing more investment losses than gains.

President Barack Obama pledged during the presidential campaign to increase the rate. He has said he wants to let the rate rise to 20 percent for families making more than $250,000 and eliminate it for small businesses.

“My guess is that Obama still will not rush to do anything on this” because of likely negative reactions from Republicans and the stock market, Baker said. “We’re talking late in the year or early next year.”

The richest 400 Americans collectively paid $18.1 billion in taxes in 2006, the highest in the 15-year period and 1.77 percent of all income taxes paid in the United States; on an inflation- adjusted basis, the dollar amount was the highest since 2000.