How Exactly Will The Tax Credit Work

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Simplified (not exact) Description:
When you figure your taxes, you have income items, and various deductions, resulting total taxable income. From that, you calculate your total tax liability.

Then you subtract this $7500 tax credit. If negative, your remaining total tax liability becomes zero. The result is your remaining tax liability. You might already have paid more or less than this amount.

So you then subtract the tax payments you already made (W2 withholding, any estimated taxes, etc.). The result, if positive, is the amount you still need to pay. If negative, it is the refund that the IRS owes you.

So, you need sufficient "Tax Liability" to benefit from this special EV "tax credit". The amount of taxes that you still owe (would still need to pay) is not important for this benefit.
 
pcenginefx said:
So then to make it plain and simple (just trying to be perfectly clear here):
1. Buy Leaf in 2011
2. File taxes for 2011
3. Receive $7,500 tax credit in the form of *cash refund* IF I am receiving a tax refund already
OR
If I owe the IRS extra money at tax time, the $7,500 is applied to my balance due.

Yes, that's basically sums it all up. At least that's what I've been told as well.
 
You can not get the balance in a refund.

If you pay $6,000 in taxes and deduct the $6,000 from the $7,500 you get $6,000 and loose $1,500 of the $7,500. This make it a brake even on the lease.
 
See, this is why I'm confused :)

The reason why I wanted clairifaction in the first place was that it was my understanding from reading this thread that unless you end up owing tax at tax-filing time, the $7,500 is worthless to a Leaf buyer. I am most likely expecting a refund for 2011 like I have over the past few years, so in this case I the Leaf tax credit does me no good....?

From the sounds of it, there seems to be still some ambiguity around how this exactly will pan out.
 
A refund, regardless of the amount doesn't figure into the Leaf $7,500 at all.

A refund means you gave the IRS too much money throughout the year. If you gave them $100, and your tax bill was $25 for the year, then you get a $75 refund because that is the amount you overpaid. If you gave the IRS $15,000 throughout the year and you owe $12,500 in taxes, you would get a refund of $2,500. What you need to know is what is your tax liability for the year?? Do you pay $10 in taxes or $10,000 in taxes? THAT is where the $7,500 tax credit for the Leaf comes in.

If you only owe $2,000 in taxes, then when you subtract the $7,500 Leaf tax credit, you would get credit for the $2,000 you normally would owe, and you would LOSE THE OTHER $5,500 FROM THE LEAF CREDIT. It is only a credit, not a rebate....there is a difference. You only get the full $7,500 if you pay over $7,500 in taxes.

If, however, you owe $10,000 in taxes, you subtract from that the $7,500 from the Leaf and now you only owe $2,500 for the year. If you had $12,000 withheld throughout the year, your refund would be $9,500 ($7,500 from the Leaf credit, and $2,000 from what you overpaid)

Your refund is simply predicated by how much you have withheld vs how much you owe. The Leaf $7,500 is applied only against how much you OWE, and only UP TO $7,500. If you LEASE a Leaf, however, Nissan 'gives' you credit for the entire $7,500 as if you put that in as a down payment. So if you owe less than $7,500 in taxes, leasing is a way of getting all of the $7,500 that you otherwise wouldn't have.

Clear as mud? :mrgreen:
 
OK! I think this is finally making sense now! So tell me if this scenario looks right:

Federal tax owed for 2010: $25,000
Leaf Tax Credit: $7,500
TAX DUE: $17,500

Withholdings from paycheck: $26,000
REFUND: $8,500
 
pcenginefx said:
See, this is why I'm confused :)

The reason why I wanted clairifaction in the first place was that it was my understanding from reading this thread that unless you end up owing tax at tax-filing time, the $7,500 is worthless to a Leaf buyer. I am most likely expecting a refund for 2011 like I have over the past few years, so in this case I the Leaf tax credit does me no good....?

From the sounds of it, there seems to be still some ambiguity around how this exactly will pan out.

Several others have spelled it out pretty clearly...but to re-re-re state it:

There's no ambiguity if you know how much tax you pay. Tax filing time and whether you are ahead or behind in your ultimate payment due to the Feds on that date have NOTHING to do with it. Just because your withholdings from each paycheck are set up such that you typically get a tax refund has NOTHING to do with it. Do you pay federal income tax? My guess is yes - we don't know how much, but you do - look at your tax return. Up to 7,500 of that tax, for the year in which you buy the car, can be returned to you in the form of this credit.

Try it this way: how much is deducted from your pay, total for the year? How much do you expect your refund to be? (that represents overpayment of taxes during the year - if it's a big number you might be having too much withheld from your pay, you might as well get that money earlier by not having it withheld, but that's a personalized calculation and decision). If the amount withheld from your pay exceeds your refund, you paid income tax. If that amount of income tax is $7500 or more, then generally speaking you should get $7500 back. If it's less than $7500 you'll only get that much back. The credit reduces your taxes. Again, your refund, or the check you write on April 15th are just adjustments to arrive at you having paid the right amount of tax - those amounts are not directly relevant.
 
pcenginefx said:
OK! I think this is finally making sense now! So tell me if this scenario looks right:

Federal tax owed for 2010: $25,000
Leaf Tax Credit: $7,500
TAX DUE: $17,500

Withholdings from paycheck: $26,000
REFUND: $8,500



Yep (if your tax picture is otherwise the same for 2011, when you'll be buying the car)
 
OK, everybody - pull out your standard IRS 1040 form from 2009 (I don't know about you, but I haven't done my 2010 taxes yet). You do have that handy at all times, right? ;)

For this exercise, we're going to assume that EVERYTHING about 2010 (or, well, 2011 for most of us) is the same as what happened in 2009. Obviously this is wrong, but.. it's the best I can do:

  • So on a standard 1040 form from 2009, line 60 is your "total tax" for 2009.
  • Take the value from line 60, and subtract $7,500 from it [LINE60 -7500] . If the result is negative, then make it 0.
  • You have now calculated the amount of tax you owe the government for 2009. Call this TAXOWE
  • Box 71 has how much you already paid the government in taxes in 2009.
  • Subtract TAXOWE from the value in box 71 [LINE71-TAXOWE]
  • If the answer is positive, that is the refund you would have gotten on this magical 2009-as-2010-or-2011 year.
  • If the answer is negative, that is the amount you would have had to pay on this magical 2009-as-2010-or-2011 year.

Again, this is assuming the tax code for 2010 or 2011 was the same as 2009, that you made the exact same amount in 2009, collected the exact amount of interest in 2009, etc. This number you've come up with is NOT what you will get back/owe for 2010 or 2001, but it at least gives you a VERY broad idea of what you might get back/owe.

If I have this wrong, please correct me - but this is my understanding of it. I don't know if this is easier or harder than how others have explained it already.

(Of course, in the time it took me to compose this message, pcenginefx now has got it. But... I'm posting this anyway, just in case it helps anyone else)
 
wsbca said:
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....
 
Holy carp! :eek:

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.
 
DaveNagy said:
Holy carp! :eek:

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 $.
 
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?
 
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
 
DaveNagy said:
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 :eek: ) 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.
 
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/0,,id=96196,00.html
 
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!)
 
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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