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Need advice regarding EV Federal Tax Credit

Discussion in 'Model 3: Ordering, Production, Delivery' started by rawminh, Sep 14, 2018.

  1. rawminh

    rawminh New Member

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    I might have shot myself in the foot before making my purchase…

    I’m not sure I will have $7500 in liability when taxes come around 2019. I currently make about ~49k from my job. I only work this job M-F, 9-5, salaried. I have contributed 3.7k into my company 401k for 2018 (and 1.7k back in 2017). I also elected to do the tax deductible FSA program which amounts to 2.65k for 2018. My parent have paid off the mortgage and I am co-owner of the home.

    What can I do to increase my tax liability to get the most of the EV federal tax credit at this point? I was planning on rolling my 401k into a roth IRA and hopefully not take the property tax on my tax form this year (since I believe that is a tax deduction?). I was also thinking I will try to pick up a second job as a waiter to increase my income and therefore my tax liability.
     
  2. arnolddeleon

    arnolddeleon Supporting Member

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    The short answer to increasing tax liability is increasing income. Doing a Roth conversion is a form of bringing income into a given tax year. Another job should increase income. If you're entitled to a deduction you should take, the only reason not to take is save yourself the work if you know that it won't make a difference.

    This is not tax advise, you should consult a professional.
     
  3. animorph

    animorph Active Member

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    The Roth conversion would certainly increase your income. If you have a taxable brokerage account you might be able to generate some capital gains as a last resort. That accelerates your taxes, but increases your tax basis.
     
  4. mptpro

    mptpro Member

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    The Roth conversion is a good idea, even without your tax-credit issue - everyone should do that (I'm a 30-year trainer of financial advisors). However, one question is, is your 401k already a Roth 401k or a Traditional 401k?
     
  5. MikeATL

    MikeATL Member

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    The standard deduction is now $12,000 so, unless you have other itemized deductions to push you beyond $12K, you’re not itemizing anything. Property Taxes and State Income taxes are part of those itemized deductions, but I don’t see how you’d have enough with only $49K in income. Other itemized deductions include mortgage interest (which you don’t have) and charitable deductions, but everything combined is not probably going to be close to $12K for you, so you’re not taking any of those deductions. If you do have something that I’m not thinking of that’s going to result in going over $12K and therefore itemizing, you should try and delay those until 2019 if they haven’t already occurred.

    Your IRA, 401k, FSA, and HSA are adjustments to income and not part of the $12k itemized deductions mentioned above, but they have the same effect of reducing your income.
    See Itemized Deductions vs. Above-the-Line Deductions - TaxAct Blog

    If you’re continuing to contribute to an HSA or FSA, for the rest of the year, you might stop those deductions. Be careful with FSA’s in general as you lose that money if you don’t spend it (HSA you keep forever.) Take that money and send it to a Roth IRA instead.

    If your work 401K is a regular 401K instead of a “Roth 401K” then switch to the Roth version. If you don’t have a Roth option at this employer AND if your employer doesn’t match your 401k contributions, then stop your 401k contributions for the rest of the year. If they do match, then you need to always contribute enough to get the match. Anything you take away from the 401k, you can contribute to a Roth IRA instead. You can contribute to the Roth up until 4/15/19 for 2018.

    If you have an existing IRA that’s not a Roth, then converting that to a Roth is a great way to manufacture taxable income. Conversions must be done by 12/31/18.

    I’d you have a 401k from a prior employer, then you should roll that over into an IRA (do that anyway regardless of this tax credit issue) and if it wasn’t a Roth, then now you have another IRA you can convert to a Roth. Complete rollover and conversion by 12/31.

    If you hold stocks, mutual funds, or ETFs in a taxable brokerage account (not a retirement account) and they have gains, you can sell them, take a gain, and instantly buy them back so you’re still invested in the same things. Brokerage web site will show you what gains you’ve accumulated.

    Beyond these tricks, you need to get another job or start a business.
     
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  6. beachbum77

    beachbum77 Banned

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    Seek professional tax advice. Too much money is at stake.
     
  7. ratsbew

    ratsbew Active Member

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    I'm in a similar situation. As it stands now my tax liability will be around $6k. I'm probably going to sell some stock to get me up to $7,500.
     
  8. voip-ninja

    voip-ninja Give me some sugar baby

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    What advice?

    He doesn’t pay enough taxes to take advantage of the tax credit and the end of the year is approaching. He can calculate how much more income he needs to make to benefit and wouldn’t need a professional to do that as free calculators are available from Intuit and elsewhere.

    His best shot might be getting some seasonal end of year work nights and weekends and earn enough additional income to get the tax credit. Labor market is tight so that might be his best option.
     
  9. beachbum77

    beachbum77 Banned

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    I was referring to the 401k conversion. Obviously, additional income would increase his tax liability.
     

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