Teacher w/o $7500 tax liability - any ideas?

[Jared Boggs]

I am a school teacher with close to zero federal tax liability. I currently drive a Nissan Leaf, and my 4-year lease ends in May 2015. I've been a Tesla zealot forever, and I have dreamt of buying a Model S for a long time. I have the means to purchase one (with some serious debt), but I'd HATE to miss out on the $7500 fed tax credit. Anyone faced this problem? Any CPA's out there with some advice?
I have no family in California (they're back East). My father (in MA) has enough tax liability, but if he bought it, he'd have to keep it registered (in his name) in MA for 3 years in order to collect the state incentive ($2500, same as CA). I'm trying to think of a way I can take advantage of both the federal and state incentives.
Thanks in advance for any advice!

 

[yobigd20]

you're a salaried teacher and you don't pay any taxes? are you sure that you're not confusing tax liability with the amount that you owe(or get back) every April? you do have taxes taken out of your paycheck, right?

in other words, assuming you have fed tax deducted just like everyone else, come April tax time, if you've paid all your taxes and you don't owe anything, or if you've paid more and you're getting some back, that *DOES NOT MEAN* you have $0 tax liability. It just means you've already paid your tax liability. For example, if you make $50k, and let's say the fed takes $1k per month out of your paycheck. At tax season time when you file your taxes, if your tax liability is $12k, well you've already paid $12k so you're dead even. You don't owe anything, and you don't get anything back. BUT YOUR TAX LIABILITY IS $12k, not $0. thus you can claim the credit and get $7500 back. If your tax liability for the year ends up only being $5k for whatever reasons (maybe you have lots of deductions or have lots of cash and donated tons to charity, lol), yet you paid $1k a month for 12 months (you paid the man $12k total already though paycheck deductions), then you get $7k back for overpaying, and you can still claim the credit and get that other $5k back too. it's capped at your max liability (aka you can't "make money" from this as it's a tax credit, not a refund). (and if you really overpay $7k every year you should add some withholding points to your W2 so you don't give the government a free loan through the year!! lol)

besides that, the only way you can claim this credit that I can think of is to create tax liability. make money. how do you do that without getting a new job? well for one you could cash out stocks (profit is taxable), retirement account withdrawal (not a loan; you don't pay taxes on loans; also if you contributed pre-tax dollars then the full amount you pull out is taxable), etc. up to the amount that you would end up owing $7500 at tax time. let's say your tax bracket is 20% (i'm just throwing numbers out here, if your tax bracket is really 20% then you do have liability but I'm just trying to prove a point here), then if your liability is really $0 after deductions, in order to owe $7500 you have to make an additional taxable ~$37500. 20% of $37500 = $7500. *****note: i'm not recommending withdrawing from your retirement account. i'm just saying its possible. in fact, pulling out $37500 early is going to cost you way more than $7500 in the long run due to lost investment growth. If you really do have $0 tax liability (perhaps you could enlighten the rest of us here how to do this LOL), you *really* need to speak to a financial advisor about the right way to create enough liability to get back the full $7500 if that's even possible.

FWIW I know there are retired people that make $0 and have $0 liability. But they might have $5mil in stocks. so if they wanted to get the $7500 back they'll just cash out a portion of their stocks (probably around $37500 in profit's worth), in order to owe $7500 at tax time. then they can claim the credit and get that back.

 

[ItsNotAboutTheMoney]

tax liability = total taxes that you should have paid at the end of given tax year.

I know that in some states there are teachers who qualify for food stamps, but 0 tax liability for a teacher with no family would be extraordinary. Paying off large student loans?

 

[bonaire]

Buy used. Also, longer term view, is this a prudent decision for someone who is sort of saying they have to stretch financially to buy a car which is only going to depreciate? The 2016 electric car models out there will be a larger and wider market. Maybe your wants, needs and must haves could change by mid 2015. I would also say talk to family and even a CPA to settle your mind. When I was young, I wanted to eventually buy a Lamborghini. I drive a Volt now. I can afford a Lamborghini.

 

[daxz]

...
besides that, the only way you can claim this credit that I can think of is to create tax liability. make money. how do you do that without getting a new job? well for one you could cash out stocks (profit is taxable), retirement account withdrawal (not a loan; you don't pay taxes on loans; also if you contributed pre-tax dollars then the full amount you pull out is taxable), etc. up to the amount that you would end up owing $7500 at tax time. ...

Instead of an IRA withdrawal you may be able to convert part of retirement accounts to a ROTH. This would create a tax liability now that could be covered by the credit and not take away from retirement savings.

This may be even more useful in states with large credits like CO, GA, IL.

IRA FAQs - Rollovers and Roth Conversions

Buy used. Also, longer term view, is this a prudent decision for someone who is sort of saying they have to stretch financially to buy a car which is only going to depreciate?

+1

 

[eRandall38]

Wait, to qualify for the CA $2,500... you have to own the car for 3 years?

 

[Ssssly]

Wait, to qualify for the CA $2,500... you have to own the car for 3 years?

Yes and you must keep it in registered in CA for 3 years.

https://energycenter.org/clean-vehicle-rebate-project

 

[kjl]

Wait, to qualify for the CA $2,500... you have to own the car for 3 years?

I can't remember the fine details, but you get the $2500 right away, but I think if you sell it within 3 years you have to give it back, or something like that.

 

[GlennAlanBerry]

Yeah, I think you might be confused about what tax liability means. Yobigd20 did a good job explaining it.

This site claims average wages for a school teacher in California are between $41-67K (who knows how accurate that is).

http://www.teacherportal.com/salary/California-teacher-salary

 

[tga]

Wait, to qualify for the CA $2,500... you have to own the car for 3 years?

Actually, OP was talking about the MA $2500 rebate, which does have a 3 year ownership requirement:

Frequently Asked Questions | MOR-EV

I am a school teacher with close to zero federal tax liability.

IANACPA, but to simplify what others have said, dig out last year's 1040. If line 61, "Total tax" is greater than $7500, you should qualify. Line 61 is what matters, not size of refund (lines 73/74a) or amount owed (line 76). If you filed a 1040A, it's line 35. 1040EZ, line 10.

Or, look at your paystubs, multiply federal withholding by number of pay periods, and subtract last year's refund (or add your April payment) to estimate total tax liability.

Even if your tax liability is less than $7500, you should be able to take a partial credit, reducing your taxes to 0. You just can't take the full credit and get money back (ie, tax liability of $6000, take $6000 of credit, pay nothing. Not take the full $7500, and get a $1500 refund) - it is a non-refundable tax credit.

This site claims average wages for a school teacher in California are between $41-67K (who knows how accurate that is).

Again, IANACPA, but I took a quick look at the 1040EZ tax tables. $65k in income is around $7500 in Federal taxes. At the risk of sounding like a jerk, if your tax liability is really less than $7500, I'd re-think owning a (current) Tesla - the car probably costs significantly more then your annual income. Maybe another 3 year lease on a Leaf, Volt, etc until the Model 3 comes out?

 

[Lloyd]

There is not a way YOU can take advantage of both, but you can put the vehicle in both names for titlte, you take the CA credit, and your father can claim the Federal credit. The Gov. does not care, as long as it is taken only once for the vehicle.

 

[eRandall38]

Yes and you must keep it in registered in CA for 3 years.

https://energycenter.org/clean-vehicle-rebate-project

I can't remember the fine details, but you get the $2500 right away, but I think if you sell it within 3 years you have to give it back, or something like that.

Hmmm. If you were to sell it before 3 years is there a pro rated amount... or you just owe it all back?


EDIT: From that link:

Rebate recipients who do not retain the eligible vehicle for the full 36 month ownership or lease period will be required to reimburse ARB all or part of the original rebate amount.

1. Vehicle purchaser or lessee is required to notify the Administrator to seek approval for early termination of vehicle ownership in advance of intent to sell or terminate a lease prior to the required 36 month ownership period.
2. ARB will periodically check vehicle identification numbers with vehicle registrations to ensure that CVRP applicants meet this requirement. If an applicant violates this requirement, ARB or its designee reserves the right to recoup CVRP funds from the original vehicle purchaser identified on the rebate application form and may pursue other remedies available under the law.

Seems like it could be a prorated amount.

 

[karmamule]

My first thought would be to raise the number of exemptions you claim on your W2 so you will have less tax taken out with your paycheck and owe more at tax time. I'm not sure if they let you change that mid-year.

EDIT: corrected 'lower' to 'raise'. Though, the more I think about it, I don't think this affects your tax liability either way. Leaving it out here just in case there is anything to it.

 

[ZBB]

My first thought would be to raise the number of exemptions you claim on your W2 so you will have less tax taken out with your paycheck and owe more at tax time. I'm not sure if they let you change that mid-year.

EDIT: corrected 'lower' to 'raise'. Though, the more I think about it, I don't think this affects your tax liability either way. Leaving it out here just in case there is anything to it.

No, that does not change your tax liability. It only changes your deductions...

 

[GoBlue88]

Buy used. Also, longer term view, is this a prudent decision for someone who is sort of saying they have to stretch financially to buy a car which is only going to depreciate? The 2016 electric car models out there will be a larger and wider market. Maybe your wants, needs and must haves could change by mid 2015. I would also say talk to family and even a CPA to settle your mind. When I was young, I wanted to eventually buy a Lamborghini. I drive a Volt now. I can afford a Lamborghini.

+1. I know a guy who might be willing to sell him a used one. :wink:

 

[swaltner]

As has been mentioned several times, just make sure you are clear on the difference between what your tax liability is and what your tax due/refund when you file taxes. If you really don't have enough tax liability to fully claim the $7,500 tax credit, pump up your income (tax liability) in a specific year. You can do this by:

- selling stocks or mutual funds that have increased in value and are being held in a non-retirement account
- convert money held in a traditional/rollover IRA into a Roth IRA

These are methods that many people would have access to for increasing their tax liability.