Oops, you're right of course. Sell a short-term position (<1 year) would work.
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$7,500 Federal Tax Credit Bummer
- Thread starter JerrySchultz
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Oops, you're right of course. Sell a short-term position (<1 year) would work.
dgpcolorado
high altitude member
Not true. Any income that leads to ordinary income tax, Form 1040 line 44, qualifies to be offset by the EV tax credit. It can be earned income, unearned income, retirement income or whatever. Anything that you enter on page 1 of 1040, less adjustments and deductions, will generate the tax owed on line 44.
"Other taxes" such as the Self Employment tax mentioned above, do not qualify for the credit.
One strategy for raising income — and tax owed — for the purpose of claiming the tax credit, for those who need to do so, is to covert part of a taxable IRA to a Roth IRA. The downside of doing this is that it may raise one's tax bracket, reducing the value of the tax credit claimed. This needs to be done by December 31st. If you overshoot the amount needed to generate $7500 in tax liability you can "recharacterize" some of the converted assets and put them back in the regular IRA (but it gets complicated because earnings also have to be recharacterized). This recharacterization can be done up to tax day the following year, usually April 15th (April 18th this year).
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John Stuckey
Member
When it works it is sweet. $15,000 in tax credits in the last two years - One Volt, one Tesla.
Owner
Active Member
Legal disclaimer.... I'm not a CPA...
Yes, but you forgot AMT... etc...
...Legal disclaimer off...
AMT does not factor except in the following scenario:
If you're tax liability is say $5K but AMT causes it to go up to $7500, you'll still only be able to take $5K of the tax credit.
dhanson865
Well-Known Member
and you have to have that in your taxable income after deductions and allowances. Just a having a married couple with no kids and standard deduction would require an income around $77,000. For a single file situation it's closer to $57,250
Working down a form 1040 (long form) the labels are
7 - Wages, salaries, tips, etc (think gross income)
a bunch of other possible sources of income
22 - Total income
37 - Adjusted Gross Income
40 - Itemized or Standard Deduction
42 - Exemptions
43 - Taxable income
For anyone with simple taxes 7, 22, 37 will be the same
(numbers from 2014 tax form, not meant to be tax advice)
Jrogville
Member
I know this is an old thread, but the information is still applicable. If you're retired, you can create income to incur the tax liability by transferring sufficient funds from a traditional IRA or other retirement account into a Roth IRA. Of course, you also have to take into account any losses or deductions you may getting as well. My income is normally offset by farm losses, so I had planned to use the IRA transfers before I ended up ordering a CPO instead.
It's worth noting that the tax credit offsets income from self-employment if it's a pass-through organization, and many people reading this should be aware of this (since unlike OP, most people draw a salary from their SE business).
So to those who operate small LLC's or sole props, or draw salary from an S-corp, self-employment income goes on line 12 of the 1040 (https://www.irs.gov/pub/irs-pdf/f1040.pdf) and that ends up on line 47, which is the number the credit is subtracted from. The credit then goes on line 54. This is all in the 8936: https://www.irs.gov/pub/irs-pdf/f8936.pdf
Self employment tax is line 57, which is after line 54, isn't affected by the credit. But self employment tax is not self employment income. Income is money coming in, tax is money going out.
Just to add an example, and I'm sorry as I'm cross-posting this comment, but this could save people $7500
If you earn $100,000 in self-employment (net) income as a passthrough (single member LLC, sole prop, e.g.) you will incur $15,130 in SE taxes. $100,000 goes on Schedule C, which then goes on Line 12 of 1040. That contributes to AGI, and to taxable income, and therefore final tax (line 47). Let's say tax on $100,000 minus deductions is $8,500. You then put $7,500 on line 54, subtract it from $8,500 to get $1,000. That's your income tax liability. Then you add the $15,130 tax, which again is an outflow, not income. So you would owe $1,000+$15,130. This is less than the $8,500+$15,130 you'd pay without the tax credit.
So to those who operate small LLC's or sole props, or draw salary from an S-corp, self-employment income goes on line 12 of the 1040 (https://www.irs.gov/pub/irs-pdf/f1040.pdf) and that ends up on line 47, which is the number the credit is subtracted from. The credit then goes on line 54. This is all in the 8936: https://www.irs.gov/pub/irs-pdf/f8936.pdf
Self employment tax is line 57, which is after line 54, isn't affected by the credit. But self employment tax is not self employment income. Income is money coming in, tax is money going out.
Just to add an example, and I'm sorry as I'm cross-posting this comment, but this could save people $7500
If you earn $100,000 in self-employment (net) income as a passthrough (single member LLC, sole prop, e.g.) you will incur $15,130 in SE taxes. $100,000 goes on Schedule C, which then goes on Line 12 of 1040. That contributes to AGI, and to taxable income, and therefore final tax (line 47). Let's say tax on $100,000 minus deductions is $8,500. You then put $7,500 on line 54, subtract it from $8,500 to get $1,000. That's your income tax liability. Then you add the $15,130 tax, which again is an outflow, not income. So you would owe $1,000+$15,130. This is less than the $8,500+$15,130 you'd pay without the tax credit.
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boonedocks
MS LR Blk/Blk 19”
:0 When will we have a flat fare tax that everyone participates in? I pay enough federal taxes that it feels like I am single handedly funding a small country. All you guys that don't have any realized paid taxes....good for you....
Okay I am off of my soap box now. Hats off to you guys tho. I am just thankful that I make enough in an employee position to be able to pay those taxes so not totally complaining.
Okay I am off of my soap box now. Hats off to you guys tho. I am just thankful that I make enough in an employee position to be able to pay those taxes so not totally complaining.
MDMGSO47
Member
Sorry, but incorrect.
Total Tax (line 47 of form 1040A) is computed based on your Taxable Income (Line 43 of form 1040A). Taxable Income includes income from Capital Gains (line 13 of form 1040A). The EV Tax Credit is credited against Total Tax (line 44 of form 1040A).
If your Total Tax (which includes income from capital gains), equals or exceeds $7,500, you can take the tax credit. This is true even if your Taxable Income consists 100% from capital gains.
Therefore, the EV tax credit can be credited against taxes generated by capital gains.
hardly a gimmick. the majority of people pay income taxes so lol
FlyF4
Son of a MX
Good information, but just to be clear, that statement is applying to the Tesla he purchased. SOME tax credits for other purposes CAN be forwarded to future years. I've done it, been audited and resulted in a "No change".
FlyF4
Son of a MX
Yup, just what I was planning to do at the end of the year if I need income to offset.
Of course this assume that one pulls the money from a "taxable" IRA rather than something like a Roth Ira (according to my CPA).
Nosken
Active Member
Possibly another wrinkle to this, if you use your car for business, let's say 60%, then the amount you can clean the first year, does carryover relative to the amount of miles you claim for business.
My account and it ran some future numbers for me for next year. Since I have both earned and unearned income, and I use my car for work, it appears that the percentage or use the car for work, can carry over to future years with the car.
It seems we have some very knowledgeable tax people here, and it appears that this is correct, so tell me and if it isn't. This isn't urgent, especially for me, yes, it's always about me, since this won't go into effect until I file my return for this year.
My account and it ran some future numbers for me for next year. Since I have both earned and unearned income, and I use my car for work, it appears that the percentage or use the car for work, can carry over to future years with the car.
It seems we have some very knowledgeable tax people here, and it appears that this is correct, so tell me and if it isn't. This isn't urgent, especially for me, yes, it's always about me, since this won't go into effect until I file my return for this year.
cpa
Active Member
It depends. How do YOU define tax liability?
If you are over 59 1/2, then all you pay is income tax on your pension withdrawal, and yes, the $7,500 Section 30D credit can be used to reduce your income taxes on that withdrawal. But common sense tells me to roll that distribution into a Roth IRA. Same tax hit, but the funds appreciate tax-free and withdrawals are tax free.
However, if you are younger than 59 1/2, then you not only have income taxes to pay on the distribution (which, yes, the 30D credit can be used to reduce the income taxes), but you will also have a 10% excise tax penalty figured on form 5329 and reported on line 59. Line 59 is part of the "other taxes" segment of form 1040, and these are not Chapter 1 (income) taxes. The $7,500 30D tax credit cannot be used to offset this additional tax. So, a hypothetical $40,000 early distribution from a qualified plan will result in federal and state income taxes on $40,000 plus a $4,000 additional federal tax. Here in California, the state has its 2 1/2% additional tax.
MDMGSO47
Member
While I was able to use all of my $7,500 purchase credit on taxable income consisting of earned income as well as capital gain, I was not able to use the charging equipment installation credit, apparently because it was either phased out by income restrictions (you don't get it if you make more than X dollars) or because of the Alternative Minimum Tax.
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