No, that isn't correct. The line to look at, for the form you have displayed, is line 46, that's the total tax liability before credits. The credit is applied on line 56, and is deducted from the liability along with any other credits.
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Tax Credit Clarification
- Thread starter SmarterMotors
- Start date
voip-ninja
Give me some sugar baby
Spot on post.
Worse than that though is not only is he indicating he won't earn enough to qualify for the full $7500 tax credit.... but he's saying he moved to Southern California (one of the highest cost of living ares in the US) "because of Model 3".
I think people's priorities are messed up.
If buying a vehicle is a financial burden or forces you to reduce/eliminate retirement contributions, buying your own home, etc., it's a very bad idea. Just buy a used car and save your money for a few years until you actually can afford the car you are lusting after.
SageBrush
REJECT Fascism
Right, but there is a trick here. The federal tax credit is non-refundable so if the other tax credits leave less than 7500 tax liability the eligible EV credit will be less than 7,500 also.
As a practical matter (though there must be an exception somewhere,) a taxpayer will not receive tax credits that total more than tax liability
@gregincal , parse this sentence from the OP:
I say at best unclear, but more likely indicative of OP not understanding tax liability.
I think what OP is saying is that his tax liability is less than $7,500, e.g. it is $6,000. He will be taking delivery early 2018 so that he can "get as close to $7,500" as possible. I.e. He will get $6,000 as opposed to $3,750 if he waits till end of 2018 for delivery.
He claims to understand how tax liability works, so I believe him.
His only question in this thread was how to not pay the $6,000 via withholdings throughout 2018, so that he doesn't have to wait till early 2019 to get his $6,000 back.
I feel like a lot of people here are completely misunderstanding the OP. I along with a few others gave the OP some good advice on how to achieve his objective. Advice that he can explore after talking to a tax professional.
And yes, the tax credit can be taken away at any time, so sometimes it is better to just wait for the refund.
He claims to understand how tax liability works, so I believe him.
His only question in this thread was how to not pay the $6,000 via withholdings throughout 2018, so that he doesn't have to wait till early 2019 to get his $6,000 back.
I feel like a lot of people here are completely misunderstanding the OP. I along with a few others gave the OP some good advice on how to achieve his objective. Advice that he can explore after talking to a tax professional.
And yes, the tax credit can be taken away at any time, so sometimes it is better to just wait for the refund.
Exactly. The question seemed pretty clear to me. At no point did he give the slightest indication that he believed his tax withholding would change his credit, just when he took delivery.
deonb
Active Member
Not necessarily. If you're self-employed you just have to pay 100% of your previous year's taxes over the 4 estimated tax times, even if you know you owe more.
I sent them 10s of thousands back in April this year and didn't get a penalty.
I think (but not 100% sure) - even if you're not self-employed, you just have to pay 90% of your liability over the year to avoid a tax penalty.
siucity
Button Pusher
If you're disciplined, you want as little as possible withheld and you want to pay come tax time. Essentially right now you're giving the government a free loan.
I don't think it will be taken away. But if our people in charge can repeal the Clean Power Plan, which is what they are trying to do, then taking away this credit would be child's play compared to CPP.
deonb
Active Member
Giving him the benefit of the doubt, but we always ask, since it's unlikely that someone with an income low enough to pay < $7500 in taxes will buy a > $35k vehicle.
It was the paragraph before that led me to believe he thought otherwise: "My tax liability though is below $7,500. I'll be taking the delivery of the $35K base model in 2018 (Feb-Apr) to get as close to $7,500 as I can."
That sentence seemed to indicate that somehow he could affect what his tax liability for the year based on delivery timeframe or other factors, when in fact that isn't the case. I understood what he was saying about modifying his exemptions to get money for that $7,500 over a period of time rather than later, at once, as part of his returns, but it still at least seemed like there was a fundamental misunderstanding about how it all worked.
I'm not sure what you're referencing about my other point, and it being attributable to a particular quarter, so you'll have to clarify that for me.
Understood, and I've heard that many times from all the guru investors and savers, but for me it's easier to budget based on a smaller income, and have a forced savings account via my tax return. Part of being disciplined is knowing your reality, your habits, and working within them. I still save plenty, but knowing I won't miss the extra money month to month, this is just another mechanism to save money and buy something pretty (like a Tesla). With the upcoming Model 3 aside, let's not pretend that people getting into a Tesla for people already here was a financially-motivated move.
I think the key is that he said he expects to have higher income in 2019. So delaying to 2019 would indeed affect his tax liability. Unfortunately the tax credit will be gone by then, so he's trying to find a way to afford the 2018 payments in the meantime.
Not sure what you mean by delaying until 2019. He has to take the credit for the tax year the car was put into service. So let's say he has at least $7,500 in tax liability. He can either chunk that up over the course of 2018 via exemptions and get 0 back at refund time, or he can get $7,500 back in April 2019. Rereading his first post it seems like he's simply wanting to get more money during 2018 with the expectation that his income will rise in 2019 and he won't need the extra padding the tax credit provides. If that's what you're saying then I think I'm on the same page, however your line about delaying to 2019 has confused me.
BluestarE3
Active Member
Please refer to IRS Form 8936 ( https://www.irs.gov/pub/irs-pdf/f8936.pdf )
- for the relevant line from IRS Form 1040 that's used to calculate the credit
- to calculate the amount of credit, if any, for which one is entitled
- for where to enter the calculated amount of the credit, if any, on Form 1040
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CarlitoDoc
Member
Just a quick comment: Things are quite different if you're an employee vs an employer. So make sure you speak with your accountants.
kenbefound
Member
So let's say I have a Fed tax liability of exactly $7500 and my employer withholds a total of exactly $7500 over the year. If I purchase the vehicle in that said year and apply for the tax credit of $7500 I will get a refund check for $7500. Correct?
SageBrush
REJECT Fascism
Maybe not, since I'll hazard a guess that the leading reason for low tax liability is unemployment.
That said, self-employed small businesses like I own are well advised to learn the basics of tax avoidance. It ends up being a lot of money and usually implies low tax liability.
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