pcenginefx
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Re: How Exactly Will The Tax Credit Work

Wed Jan 19, 2011 2:32 pm

wsbca wrote:Yep (if your tax picture is otherwise the same for 2011, when you'll be buying the car)


WHOHOOOOOO! Yah, after the last few posts the light came on and everything made sense :) Good thing too - the wife was on the fence without the tax credit....

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garygid
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Re: How Exactly Will The Tax Credit Work

Wed Jan 19, 2011 8:05 pm

pen...,
You had it correct in your precious post's example.
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DaveNagy
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Re: How Exactly Will The Tax Credit Work

Sat Jan 22, 2011 7:40 pm

Holy carp! :o

I've been totally misunderstanding how this whole "tax liability" thing is supposed to work! I thought you had to have a "bill" for at least $7,500 come April 15th, or at least some of the credit would go to waste.

Because of withholding, I typically owe only a few hundred dollars to the Feds when I file. So, at the beginning of this month, my wife and I both "turned off" all withholding. (We set our W4 exemptions to 10, the max.) My theory was that since we had about $7,000 in withholding last year, turning it off for the entirety of 2011 would result in about a $7,000 "bill", come tax time. Close to perfect. The Leaf credit would offset that, and all would be dandy. Of course, the danger would be if I didn't end up buying the Leaf. Then, the IRS would be pissed off at us for under-withholding, and would probably fine us on top of wanting all that money right-damn-now.

But, apparently I don't need to do any of that?

I should just set my withholding to "normal", and expect to get approximately all of that withholding back (up to $7500) when it comes time to file my 2011 taxes?

(Other threads on this subject repeatedly state that this credit can not be used to "create" a refund. I can see how one can parse that statement to be consistent with what being described here, but it's quite confusing. To me, at least.)

Thank you for the clarification.

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Jimmydreams
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Re: How Exactly Will The Tax Credit Work

Sat Jan 22, 2011 10:09 pm

DaveNagy wrote:Holy carp! :o

I've been totally misunderstanding how this whole "tax liability" thing is supposed to work! I thought you had to have a "bill" for at least $7,500 come April 15th, or at least some of the credit would go to waste.

Because of withholding, I typically owe only a few hundred dollars to the Feds when I file. So, at the beginning of this month, my wife and I both "turned off" all withholding. (We set our W4 exemptions to 10, the max.) My theory was that since we had about $7,000 in withholding last year, turning it off for the entirety of 2011 would result in about a $7,000 "bill", come tax time. Close to perfect. The Leaf credit would offset that, and all would be dandy. Of course, the danger would be if I didn't end up buying the Leaf. Then, the IRS would be pissed off at us for under-withholding, and would probably fine us on top of wanting all that money right-damn-now.

But, apparently I don't need to do any of that?

I should just set my withholding to "normal", and expect to get approximately all of that withholding back (up to $7500) when it comes time to file my 2011 taxes?

(Other threads on this subject repeatedly state that this credit can not be used to "create" a refund. I can see how one can parse that statement to be consistent with what being described here, but it's quite confusing. To me, at least.)

Thank you for the clarification.


Dave...

If you have about $7K withheld throughout the year and still owe a few hundred, then YES, your tax liability (or 'bill') is the $7,000 withheld plus whatever you have to pay at the end of the year, so you would get all (or very nearly all) of the $7,500 tax credit.

As such, you can A) reduce your withholding to zero and count on the Leaf's $7,500 credit, or B) leave everything alone and then get $7,500 refund from the IRS next year.

When people refer to the tax credit not being able to 'create' a refund....they are saying if your tax liability for the year is only $2,000, you can only use $2,000 of the Leaf credit....you won't get $5,500 back.....you lose that extra $.
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IBELEAF
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Re: How Exactly Will The Tax Credit Work

Sat Jan 22, 2011 11:17 pm

You guys create a lot of confusion, garygid said in previous page that it's not correct when I said the same thing, so who knows how exactly credit should work?
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planet4ever
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Re: How Exactly Will The Tax Credit Work

Sun Jan 23, 2011 1:49 am

The rule is very simple, and not ambiguous at all:

The EV tax credit can reduce the TOTAL amount of income tax you pay for the year, but it cannot make it negative.

There are several ways to pay your income tax:
  • You can have money withheld from each paycheck during the year.
  • You can have money withheld from retirement checks during the year.
  • You can make quarterly estimated payments during the year (and the next January).
  • You can pay additional money when you file your return after the end of the year.
  • You can get some credits like child tax credit that do count as if you paid the money.
  • There are also some other less common forms of payment.
All of these are part of the TOTAL amount of income tax you pay.

As a simple example, assume that you didn't get your LEAF last year. You go to H&R Block next month, and based on your income and deductions, they calculate that your income tax for the 2010 year is $6,000. You have already paid most of that:

$100 withheld from each weekly paycheck
x 52 weeks
-----
$5,200 withheld during 2010
-$6,000 the TOTAL you have to pay
-------
-$800 This is what you have to pay when you file your tax return this coming April

Now assume your tax calculations and payments work out the same for 2011, but you do get your LEAF. The $7,500 tax credit counts against your TOTAL tax.

$6,000 total tax (ignoring the LEAF)
-$7,500 credit
------
$0,000 net tax (it can never go negative)
$5,200 withheld during 2011
-------
$5,200 tax refund paid to you in 2012
End of April 2013: Traded my 2011 SL for a 2013 S with charge pkg.

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planet4ever
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Re: How Exactly Will The Tax Credit Work

Sun Jan 23, 2011 2:13 am

DaveNagy wrote:Because of withholding, I typically owe only a few hundred dollars to the Feds when I file. So, at the beginning of this month, my wife and I both "turned off" all withholding. (We set our W4 exemptions to 10, the max.) My theory was that since we had about $7,000 in withholding last year, turning it off for the entirety of 2011 would result in about a $7,000 "bill", come tax time. Close to perfect. The Leaf credit would offset that, and all would be dandy. Of course, the danger would be if I didn't end up buying the Leaf. Then, the IRS would be pissed off at us for under-withholding, and would probably fine us on top of wanting all that money right-damn-now.

But, apparently I don't need to do any of that?

I should just set my withholding to "normal", and expect to get approximately all of that withholding back (up to $7500) when it comes time to file my 2011 taxes?

Actually, your strategy is a good one in many cases. After all, why should you loan the government $7000 this year and have them pay it back next year with no interest? The problem would be, as you suggest, if you ended up not getting the LEAF this year. Let's say, for example, that you expect to be able to get it next fall, but it turns out Nissan delays the orders for some reason (not that anything like that would ever actually happen :o ) and you don't get the car until January.

Bottom line: If you expect to get the car this spring, leave your deductions at zero. Worst case: July arrives and you don't have a car. Double your deductions for the last half of the year to catch up.
End of April 2013: Traded my 2011 SL for a 2013 S with charge pkg.

IBELEAF
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Re: How Exactly Will The Tax Credit Work

Sun Jan 23, 2011 2:39 pm

Found IRS calculator that will help you calculate your tax deductions. You can play with the numbers and there is a place to enter EV tax credit at the bottom of the 2nd page.

http://www.irs.gov/individuals/article/ ... 96,00.html
Currently: '12 Volt (12k) since 7/2012
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DaveNagy
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Re: How Exactly Will The Tax Credit Work

Sun Jan 23, 2011 7:10 pm

Well, I'll say it again, my new understanding of the rules really makes me feel better about how this should all work out. My "turn off all withholding" scheme really never felt "safe"to me. Back in the day, when I was working three jobs and only two of them were doing withholding, the IRS almost got snippy with me for under-withholding. I was right on the edge of having to file quarterly estimates, or face a fine. Maybe my scheme would have worked out okay, but I'm relieved to hear that I don't have to even risk their displeasure.

I'll go ahead and jack my withholding back up. While I am giving IRS an interest-free loan, I think I'll be better off getting all the money back in one lump sum, rather than in dribs and drabs each paycheck. (In the first case, I'll throw it into savings. In the second case, I might just spend it on pizza and beer!)

IBELEAF
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Re: How Exactly Will The Tax Credit Work

Sun Jan 23, 2011 11:43 pm

i've been playing with Turbo Tax software. The interesting part is that irs doesn't care how much you paid for it to calculate the refund...

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