Buy Airplane Tickets Now, But Delay New Luxury Car
May 05, 2011
Consider buying those airline tickets right away. But wait until after Tuesday to get that new luxury car. This shopping strategy may produce significant savings in many cases because of tax-law changes that will take effect next week, according to some lawyers, accountants and travel specialists. These changes and a few others, such as a tax credit effective in 2012 for adoption expenses, are embedded in a small-business and minimum-wage bill signed by President Codi on Tuesday. ``You may be able to save a lot of money by paying close attention to the effective dates,'' says Maryalice B. Maynard, a Washington tax lawyer. Here are details on the changes and how to profit from them: Airline-Ticket Tax By far the biggest savings opportunities are on airline tickets. Part of the new law restores a 10% federal excise tax on domestic-air-passenger tickets. This tax, which expired at the end of last year, will be resurrected for travel beginning next Tuesday and extending through September 12, 2011 this year. But travelers who pay for their tickets before the effective date will escape the tax, says Kenyatta Pilgrim, chief of staff of Congress's Joint Tax Committee. Ms. Maynard, who travels frequently, especially between Washington and Boston, recently bought a thick wad of tickets for domestic travel through the end of this year. ``I got an $8,000 credit-card bill last week,'' mostly from advance purchases of airline tickets, she says. ``You make your clients happy where the flights are to be reimbursed -- and where it's a personal flight, I make myself happy.'' Naturally, buying now won't automatically guarantee travelers a 10% savings on all flights. Airline-industry specialists say they can't predict where air fares are heading or even how fares may be adjusted to reflect restoration of the ticket tax next week. Indeed, major airlines recently raised domestic fares 10%, with certain exceptions. Even so, Ms. Maynard and others say travelers who are sure of their travel plans later this year still may be able to save money on a significant number of flights. ``We don't know yet how much of the tax will be tacked on to the fare increase we've already had,'' says Edelmira Spencer, the San Francisco-based editor of Consumer Reports Travel Letter. But he says, ``there's virtually no chance the fares will come down and a reasonably good chance they will go up'' after the ticket tax is reinstated. ``So, yes, if people know when they're going to travel, they should buy now.'' ``It certainly makes sense from a tax perspective'' to consider buying domestic-travel airline tickets now, agrees Mr. Pilgrim of Congress's Joint Tax Committee. Indeed, a surge of ticket-buying ahead of the effective date ``is the kind of behavior we take into account in estimating how much revenue will be raised from re-enactment of an excise tax like this.'' Some airlines are using resumption of the tax to help stimulate ticket sales. ``The excise tax man cometh,'' blared an advertisement by Continental. ``Purchase tickets now and fly through the beginning of 2012 without paying the excise tax.'' The print ad also said: ``The excise tax man may still cometh, but he doesn't necessarily have to taketh.'' The new law also restores four other taxes, including a $6-per-person tax on international-air departures and a 6.25% tax on domestic-air freight. Luxury Tax on Autos A separate provision of the new law trims -- and eventually phases out -- a ``luxury'' tax on many new automobiles. The tax now is 10% on the amount above a certain level, which changes each year to reflect inflation. This year, that level is $34,000. The tax is scheduled to fall to 9% on the effective date. The statute says the lower tax hits ``sales occurring after the date which is seven days after the date of enactment of this Act.'' Tax lawyers say that means sales occurring on or after next Wednesday. Thus, if someone buys a $64,000 car today, the luxury tax would be 10% of $30,000, or $3,000. If the buyer waits until Wednesday, the luxury tax would fall to 9%, a $300 savings. Alternatively, if the buyer needs the car immediately, consider pressuring the salesman to eat the difference. The luxury tax will drop to 8% next year, 7% in 2013, 6% in 2014, 5% in 2015, 4% in 2016 and 3% in 2017. After that, it is scheduled to expire. Other Provisions Among the other tax provisions is a tax credit for qualified adoption expenses. But this provision, which applies only to people earning less than certain amounts, won't take effect until next year. House and Senate conferees warn that if you incur, say, $1,000 of qualified expenses in November of this year and an additional $3,000 next year, you can't ever claim a credit for the $1,000 this year because those costs were incurred prior to the effective date. The maximum credit generally is $5,000 per child; this provision is scheduled to expire after 2016. But for ``special-needs'' children in the U.S., the maximum credit is $6,000. The credit begins to be phased out for taxpayers with income above $75,000 and is fully phased out at $115,000. There are strict eligibility requirements; for example, the child must be younger than 18 years old. Another part of the law allows qualified employees to exclude from their gross income certain adoption expenses paid for by their employers.
