The tax credit has absolutely nothing to do with your withholding. That seems to always confuse people so I wanted to make sure that was really clear to folks reading this thread. You might do it so you aren't giving an interest free loan to the government, but it has absolutely no impact on if you get the credit.
The tax credit has absolutely nothing to do with your withholding. That seems to always confuse people so I wanted to make sure that was really clear to folks reading this thread. You might do it so you aren't giving an interest free loan to the government, but it has absolutely no impact on if you get the credit.
melindav
☰ 2018
I work in Portland, so get to both pay WA sales tax and OR income tax and normally the income tax wins out on my federal return. I do think the year my last car was purchased on it switched to the sales tax though.I didn't know that about the sales tax vs income tax, though I would expect your sales tax in most states would be larger for a year in which you bought a new car.
I searched the IRS and it appears they only report on Ford, Mercedes, and BMW. Maybe GM, Tesla, and Nissan are off the hook
IRC 30D – Plug-In Electric Drive Motor Vehicle Credit Quarterly Sales
Luckily this time around, (hopefully it's still running) the Model 3 will qualify for the WA EV sales tax exemption of the first $32k value so will just have sales tax on the amount above that.
Another thing to keep in mind is that there are a few posts above that mention you get the credit based on how much tax you owe. What they are specifically referring to is your tax liability, not how much you owe or get back at the bottom of your form.
Your liability is based on all of your income, all of your deductions, and your filing status, on the 1040 form it is line 47. If that line is above $7,500 and all of the other credit on lines 48 - 54 do not total more than line 47 you'll be taking the full $7,500. Otherwise you'll be taking less of it.
Your liability is based on all of your income, all of your deductions, and your filing status, on the 1040 form it is line 47. If that line is above $7,500 and all of the other credit on lines 48 - 54 do not total more than line 47 you'll be taking the full $7,500. Otherwise you'll be taking less of it.
That thread deals with people who don't get a salary from their LLC, and won't apply to you if you have a pass-through organization, which I believe is the much more common situation.
The tax credit certainly offsets income from self-employment, so long as it's a pass-through organization (so not a C-corp, or otherwise set as non-passthrough). As you already know, self-employment income goes on line 12 of the 1040 (https://www.irs.gov/pub/irs-pdf/f1040.pdf) and that ends up contributing to the AGI and therefore contributes to taxable income which then contributes to the tax 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 what you pay.
Like if you earn $100,000 in self-employment income as a passthrough (single member LLC, sole prop, e.g.) you will incur $15,130 or so in SE taxes (Schedule SE). $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 we $1,000+$15,130. This is less than the $8,500+$15,130 you'd pay without the tax.
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McHoffa
EV.network
see, this is why I'm not in accounting... it's too complicated for my brain.
Haha, the good news is that barring significant changes in your tax situation, you can just look at your copy of the 1040. If you use TurboTax or TaxAct or HRB, etc, you can download/print a PDF of your 1040 after filing. Take the credit you're entitled to at the time of acquiring the car (say $7500, but it could be $3750 or $1875 later on). The amount of the credit you take is the smaller of that number and what's on line 47 of your 2016 1040.
alseTrick
Active Member
alseTrick
Active Member
If they ship 3's to Canada, then Tesla is not "gaming the situation to get the most people in before the tax credit phased out". They would not be "maximizing" the number of recipients.
alseTrick
Active Member
It's the standard federal sales tax deduction, if you file an itemized return.
Deducting Sales Tax at a Glance
Jason Bourne
Member
So in 2016, you deducted the amount of your sales tax for your Tesla purchase, instead of deducting your itemized ductions?
JeffK
Well-Known Member
No, shipment of excess Model 3s to Canada during Q4 2017 does maximize the number of recipients of the full tax credit because it can be used to delay the 200,000th delivery until Q1 2018 thus giving an entire extra quarter of full credit.
If that car was delivered at the end of december then you would not get that extra quarter.
example: car 200k delivered at the very end of December means the full credit ends March 31st.
car 200k delivered at the beginning of January means the full credit ends June 30th
No, _if_ you itemize one of the deductions you can take is local/states taxes. You can deduct sales tax _or_ local income tax.
When calculating sales tax paid you can use actual sales tax paid or an estimate, which is based on your AGI and exemptions.
To determine sales taxes paid, you can either keep your receipts or use an estimated sales tax figure that's based on income. But, in favor of deducting sales tax when you buy a car is that sales/use tax on cars (and some other items) is treated as _additional_ sales tax, on top of the estimated sales tax
(Maine has both income tax and sales tax, which effectively lowers both numbers so the either-or rule makes it less likely for Mainers to be able to deduct. Not really logical to have either-or, but deductions for state taxes are inherently illogical anyway).
wdolson
Well-Known Member
See @cpa's response above. I live in a state with no state income tax, so the only option is to deduct sales tax. In states with income tax and sales tax, you get the choice of which one you want to deduct. If your sales tax bill is high in a given year (like when you bought a car), then you can deduct the sales tax that year. For most people, their income tax bill will be higher most years, so they will be deducting that from their taxes instead of the sales tax.
I just did it, if you think ahead, it can affect your withholding. If you have an employer, file a W-4 at the beginning to the year increasing your deductions so your tax liability will be $7500 less (or put in you have a tax credit coming, I don't recall the W-4 at the moment, it's been years since I filled one out). Then at the beginning of the next year, file a new one changing things back to what they were. If you're self employed, just send in less money for your withholding.
When your taxes roll around, you won't get a refund, but you won't be giving the IRS a tax free loan either.
I didn't send in anything for income tax throughout the year, but for the last quarter's withholding I sent in a little bit just in case I ended up owing something, but I'm getting that back because my tax liability was zeroed out. Now I did have to send in money each quarter because I still owed for Social security and medicare, but that's a separate line on the form.
There is no stopping anyone from keeping their withholding the same and getting a big refund. I prefer to keep the money if I can.
One thing that seems to confuse people about the EV incentive, it has nothing to do with how many cars Tesla sells, it has to do with how many EVs they sell in the US. Both Tesla and Nissan (and I think GM) have sold more EVs than 200,000 thus far, but none have sold 200,000 in the US yet. Tesla can keep below the 200K number sold in the US by shipping more cars overseas when they see they are getting close, then sell their 200,000th car in the US in the first week of the following quarter to maximize the number of people getting the maximum incentives.
Foxhound199
Member
Do we have any way of estimating when that exemption will expire? I know its based on the number of qualifying cars sold, but I haven't been able to figure out what that number is or at what rate it is growing.
alseTrick
Active Member
No. It doesn't.
Shipping 3's to Canada that could otherwise be "held" and later delivered to US customers does not maximize the number of recipients.
alseTrick
Active Member
alseTrick
Active Member
I didn't purchase a Tesla, but my understanding is that you can use the sales tax deduction as well as the rest of your itemized deductions. The sales tax deduction also includes more than just your vehicle purchase, but large purchases like vehicles or houses make use of this deduction more beneficial.
BluestarE3
Active Member
Right, if you know you will be getting a "bonus" $7,500 tax credit for the upcoming tax year, you could reduce your tax withholding on your paychecks throughout the coming year so that you net out close to zero on the following April 15 when you file your return. This way, you're not giving the IRS a free loan (which is what you're doing if you get a big refund check from the IRS) plus you get a bigger net paycheck throughout the year.
However, the confusion some people have is that they think the total yearly amount they have withheld on their paychecks is their tax liability. There have been posts on various threads on these forums about changing your W-4 to withhold a larger amount in order to have enough "tax liability" to quality for some or all of the $7,500 tax credit. That's why it is less ambiguous to say just look at line 47 of your last Form 1040 to determine your tax liability (assuming your income doesn't change much from year to year). It is this number that will be used to calculate how much of the credit, if any, you are qualified to take.
In short, the amount of tax withholding (and/or estimated payments) doesn't affect how much, if any, one qualifies to take the credit. However, if you know you have enough tax liability to qualify for some or all of the credit, judiciously changing the amount of your withholding can improve your cash flow.
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JeffK
Well-Known Member
Holding them is not a good business practice it's very high risk which is why I didn't even consider it. They'd be foolish to do this.
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