Getting the full $7500 tax credit

[RCEV13]

What if you raised the number of claimed dependents on your paycheck in order to reduce the amount of tax taken out of your paycheck for the purpose of increasing your tax liability so that you could essentially get the full $7500 in the form of the tax dollars not taken out of your bi-monthly paycheck?

Does that make sense?

 

[EdmondLeaf]

Very much so. If is legal that will be a good idea (I am not tax expert if this is Ok with IRS).

 

[mwalsh]

I went exempt for the two years in which I bought my solar system and the LEAF. Didn't pay taxes at all, because I had no tax liability at all. Nothing in the tax law that I know of which can force you to pay taxes you won't owe. But I'm also not a tax attorney, and you should seek your own legal and financial advice to be certain.

 

[smkettner]

What if you raised the number of claimed dependents on your paycheck in order to reduce the amount of tax taken out of your paycheck for the purpose of increasing your tax liability so that you could essentially get the full $7500 in the form of the tax dollars not taken out of your bi-monthly paycheck?

Does that make sense?

NO. The amount you prepay makes no difference on getting the credit. If you prepay less you just get a smaller refund.

Prepayments aside you must owe $7,500 in taxes to get the credit. That does not mean owe with your return but rather the total that you will pay including prepayments and at the time of filing added together. Then of course if you prefer to have the money sooner than later then by all means increase your dependents to reduce your prepayment.

Changing your dependents with your employer does not change the tax liability. You would have to change your dependents on the return.

 

[mwalsh]

Changing your dependents with your employer does not change the tax liability.

It decreases the amount deducted from your paycheck. That's what he's after.

Edit: Actually, I just read it over. He IS after getting a higher tax liability. That won't work!

 

[Randy]

It's not just about the taxes held out of your paycheck, but rather, the entire amount of your tax liability that has to be over $7,500 in order to collect the credit. Changing your tax exemptions doesn't really change your overall liability, it may increase your paychecks a bit, but that isn't going to help you...

Sell a taxable investment...That will generate some tax due that can be washed away by the credit...

 

[mwalsh]

Sell a taxable investment...That will generate some tax due that can be washed away by the credit...

If you have any regular IRA moneys, conversion of some/all to a Roth IRA can increase tax liability now. And, of course, can hedge that money against future tax rate increases!

 

[thankyouOB]

the idea by the original poster is dead on arrival and not useful, as discussed.
the most effective way to accomplish this, is to do a traditional IRA to ROTH conversion, as discussed on this website numerous times.
I believe i was the first to suggest it and to apply it in practice.

In November, take a look at the tax tables, then do a mock return; estimate what your tax deductions and other credits are, and your other variable. Come to a pretty good idea of your estimated taxable income.
if the tax liability associated with that is not $7500, then convert the necessary money from a traditional IRA to a ROTH IRA to create the level of taxable income that will yield $7500 in taxes owed.

You should consider over estimating to be on the safe side -- convert too much, that is -- as you are permitted to convert back without penalty up to the date you file or april 15. you prolly want to check the tax code on all this, because i am just a blog poster and not a tax expert, and what worked in 2011 may not work precisely the same way for 2013.

If you have a traditional IRA, you should be able to get the full credit, unless you have some AMT issues. I have never had the kind of income or deductions that put me in that category.
(at least that is what i say on the internet. )

 

[planet4ever]

Actually, increasing the number of dependents on a W-4 in order to reduce tax withheld from your paycheck does make sense, on two counts, though it certainly has no effect on whether you qualify for the full tax credit. The two ways it makes sense are:

1. You get to use your own money during the year, instead of having Uncle Sam borrow it from you with no interest.
2. Last year many people who were expecting the $7500 refund in the spring had to go through hoops and wait until late in the year to get it. It turns out that the IRS is cracking down on fraudulent returns, and they are very suspicious of any return with a large refund. See Electric drive vehicle credit 8936 decreased/rejected by IRS for some of the horror stories.

Ray

 

[thankyouOB]

Actually, increasing the number of dependents on a W-4 in order to reduce tax withheld from your paycheck does make sense, on two counts, though it certainly has no effect on whether you qualify for the full tax credit. The two ways it makes sense are:

1. You get to use your own money during the year, instead of having Uncle Sam borrow it from you with no interest.
2. Last year many people who were expecting the $7500 refund in the spring had to go through hoops and wait until late in the year to get it. It turns out that the IRS is cracking down on fraudulent returns, and they are very suspicious of any return with a large refund. See Electric drive vehicle credit 8936 decreased/rejected by IRS for some of the horror stories.

the question was: does increasing the number of dependents help one qualify for the full credit?
the answer is: it does not.

YMMV, but whether it makes sense for some other goal is not relevant, i would think.

Ray

 

[vgonzalez]

If you are not sure of your tax liability being able to cover the $7,500, you can always lease the car, so the manufacture will get the $7,500 and then you just buy the lease after 1 month.

 

[thankyouOB]

If you are not sure of your tax liability being able to cover the $7,500, you can always lease the car, so the manufacture will get the $7,500 and then you just buy the lease after 1 month.

as I recall, you end up getting ripped for about 500-700 in fees and stuff that way. but as you say, if you dont pay that much in taxes.....feed the dealership.