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Tax Questions Answered and Simplified

Tax Questions Answered and Simplified

Ok, so, so, so many questions and confusion over a pretty straight forward tax credit. I am putting my example here and mleonard1 examples to hopefully provide an easy spot to point everyone to with questions about this. Trying to make it simple, so those that are confused don't get even more confused reading everyone's personal take. If replies to this thread muddies the waters, I will repost a fresh slate to start over to keep it simple :)

TWO PARTS - TOP PART is about filing for the tax credit. BOTTOM PART is about how the tax credit phases out.

In doing your taxes, you get to the point where it says - taxable income. From that amount, you look at the tax table and find out the next line - Total Tax. This number is the first key number:

If your total tax on this line is 7500 or more, that is your tax liability and you May take the whole 7500 tax credit. But the catch, it is not a REFUNDABLE credit. So on the tax form, (form for 2017 taxes) lines 48-54 is where you put all the different tax credits you may have ie - child tax credit, educational credit, etc.. and This credit. You add all those lines up and subtract them from your total tax liability. If the tax credits are MORE than your tax liability, you would enter 0. meaning, you owe the government $0 dollars.

Now as far as getting money BACK into your bank account, that would depend on how much money you had withheld from your check throughout the year. So if somehow, the tax liability after the credits is $0 and you had $5,000 withheld from paychecks, then yes, you would get $5,000 back from the government.

Now numbers example:

You have a tax liability of $15,000
Your tax credits WITH the EV credit = $8500
Your tax liability is now - $6500
You had withheld from your checks for the year - $5,000
You still OWE $1500 to the government and have to cut them a check.

Example 2
You have a tax liability of $15,000
Your tax credits WITH the EV credit = $8500
Your tax liability is now - $6500
You had withheld from your checks for the year - $8,000
The Government OWES YOU a check for $1500.

More numbers for you....

Your total income is x
Line 44 is your tax liability based off your income
Let say line 44 is $5,000
For simplification - your only credit is the EV credit.
So line 55 - total credits is $7500.

Line 56 - subtract line 55 from line 44 - if line 55 is more than line 44, enter $0.

In our case here line 55 is $7500, line 44 is $5,000 - so you enter $0 (ie you only got to use $5,000 of your tax credit, as you don't owe more than $5,000 in liability)

WHAT YOU HAVE TAKEN OUT OF YOUR CHECKS HAS NOTHING TO DO WITH TAX LIABILITY!

What you have taken out of your checks just determines how much MORE you owe the IRS or how much MORE the IRS OWES YOU.

NOW mleonard1 Very Nice SIMPLE examples with income made etc...
Other examples:
Taxable Income: $95,000
Tax: $15,000
Credit: ($7,500)
Tax Due: $7,500
Withholdings: $18,000
Refund: $10,500

Taxable Income: $47,000
Tax: $7,500
Tax Credit: ($7,500)
Tax Due: $0
Withholdings: $7,500
Refund: $7,500

Taxable Income: $35,000
Tax: $6,000
Tax Credit: ($6,000) limited by tax amount
Tax Due: $0
Withholdings: $6,000
Refund: $6,000 (missed out on $1,500 of the credit)

Taxable Income: $35,000
Tax: $6,000
Tax Credit: ($6,000) limited by tax amount
Tax Due: $0
Withholdings: $6,500
Refund: $6,500 (missed out on $1,500 of the credit)

Taxable Income: $35,000
Tax: $6,000
Tax Credit: ($6,000) limited by tax amount
Tax Due: $0
Withholdings: $7,500
Refund: $7,500 (still missed out on $1,500 of the credit)

Simple enough?

HOW THE TAX CREDIT PHASES OUT

Additional items:
Full $7500 tax credit starts to be phased out after company sells 200,000 cars in the following manner: (Note: Sold is considered when you take delivery of car)
sells the 200,000 car, tax credit good for the rest of that quarter, and the next quarter (Quarters are; Q1 - Jan-Mar, Q2 - Apr-June, Q3 - Jul-Sep, Q4 - Oct-Dec)
After that, the credit is only half the original amount for the next two quarters
Last - the credit is only 1/4 the original amount for the next two quarters
After that, no more credit.

Examples:
Hit 200,000 sold in Feb
$7,500 credit good on anyone purchasing the car until June 30
$3750 credit good on anyone purchasing the car from July 1-Dec 31
$1875 credit good on anyone purchasing the car from Jan 2019 - Jun 30
July 2019 - and on - no more credit

Hit 200,000 in Apr
$7,500 credit good on anyone purchasing the car until Sept 30
$3750 credit good on anyone purchasing the car from Oct 1 - Mar 31, 2019
$1875 credit good on anyone purchasing the car from Apr 1 - Sep 30
Oct 2019 - and on - no more credit

andy.connor.e | 2018年1月26日

not even simple enough.

WormtownKris | 2018年1月26日

@burdogg: Good tax examples. BUT.... on the phase out, pretty sure each reduction goes 6 months, not 3. So it would be two quarters of $3750, and two quarters of $1875. Not 3 months each.

rxlawdude | 2018年1月26日

@Wormtown is correct. From IRS:
The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period. Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period.

burdogg | 2018年1月26日

Ah, thanks for the correction - I thought what you said was correct, but just didn't look right - changed in the op now to be correct - thanks guys :)

TSLAholic | 2018年1月26日

Could those of us who fall short of the full $7,500 tax liability via earned income increase our total tax liability via unearned income, i.e. capital gains by selling some stocks for profit?

M3forMe | 2018年1月26日

Good job @burdogg. Thx

burdogg | 2018年1月26日

TSLAholic - I don't know all the specifics of what kind of capital gains, but in general, yes, you can increase your taxable income by selling stock. The capital gains would then be added to your earned income to give you your taxable income.

I am not an accountant but like to play one (or at least play with numbers ;)

greg | 2018年1月26日

@tslaholic
Lookup IRA to ROTH conversions to increase tax liability.

Tesla2018 | 2018年1月26日

Could you take a regular IRA withdrawal on Dec31st that would be taxable income for 2018 and then do it as a rollover with 60 days so the rollover would show as being done in 2019 and then deduct the rolled over amount on your 2019 return?

I dont really want to do it as a Roth conversion since I plan on retiring in a few years and living off my regular savings and having no income. I figure if I get a 12K petsonal exception and can deduct 10k for property and ither deductions, yhen I will just take 22K out of my IRA each year and wont owe any taxes at all on the withdrawal.

julienewman64 | 2018年1月27日

Thanks for the clarification about the tax credit. The two remaining questions are: 1) When will Tesla hit 200,000? and 2) What is considered "sold" - ordered or delivered? That will make a huge difference for those of us on the East Coast who have not been able to even start the process yet.

rdavis | 2018年1月27日

I would think they hit 200,000 this quarter, so unless they’ve changed the phase out structure...you’d have two full quarters after they hit 200,000 to recurve 100% credit. So full credit through September. 50% Oct through March 2019 and 25% for the April 2019 - Sept 2019.

rdavis | 2018年1月27日

Sorry, I can't seem to add my months correctly... Ignore the dates I posted above

Hit 200,000 in this quarter you get the remainder of the quarter + the next quarter to qualify for 100%.

So through June 2018 is most likely going to be your 100% cut off.

July 2018 - Dec 2018 for your 50%

Jan 2019 - June 2019 for your 25%

Zero after June 2019

That's the most likely scenario.

rdavis | 2018年1月27日

Sold date for calculating the rebate is from the date you register the car with your state if I recall correctly. So upon delivery and registration.

julienewman64 | 2018年1月27日

Well poop. That certainly throws a monkey wrench into things if we in the East may not receive our lower end Model 3's until sometime mid summer or early fall, especially if Tesla hits the 200,000 by the end of this fiscal quarter.

burdogg | 2018年1月27日

rdavis - you realize those dates were in the op :) Of course I got long winded so maybe you didn't make it to that point...

rdavis | 2018年1月27日

Burdogg.... too many words in your post. ;)

burdogg | 2018年1月27日

figured - I do get long winded :)

Guess it goes back to those high school days when you had to reach a certain word count to get the A :)

burdogg | 2018年1月27日

Bumping - just because I can and hey, everything is cyclical, so this question is coming back in 3,2,1...

dyefrog | 2018年1月28日

Bumperin, to avoid congestion due to the common thread.

ReD eXiLe ms us | 2018年1月28日

Next-to-last on the front page is wy too low for this subject matter...

TSLAholic | 2018年1月28日

@burdogg

Thanks!

@greg

I don't currently have an active IRA account. Why is it that a part of me feels I should start one and contribute to it instead of saving for those extra M3 options I'd likely go for when it's time to configure?

burdogg | 2018年1月28日

So many crazy topics coming - and the cycle is repeating, so bumping this for the next round of tax questions :)

greg | 2018年1月28日

@TSLAholic,
You're asking the wrong guy. I don't know details of your personal financial situation or much about the taxation rules in the US.

But I have it on good authority that it is a fully legitimate way [out of a small range of such options] to increase tax liability quickly/easily ["on demand"] - but only of course, if you actually have an IRA.

If you don't have one now it may be too late to start for this purpose in any case.

And you may find it easier reduce your withholding amount from your paychecks going forward - which works better as you'd get more cash "now" - to help pay for those M3 options "up front", and in return an equivalent Tax liability you can use to offset the Tax credit when you file down the track.

Basically you're going to have to take the rest of the year "to figure it out".

Just make sure you don't over or under estimate your liability to make sure you can get full benefit.

Once you're invited to configure you can likely lock in your M3 options and know your likely Tax Credit amount and plan accordingly to ensure you get all you can afford..

TSLAholic | 2018年1月29日

@greg

Thanks! I've already reduced my withholding amount in preparation for this. But the more I think about it, the more it becomes clear that I will likely not be taking delivery until after at least the first phaseout period has begun. If that turns out to be the case, all of the above planning and preparation would end up rather null, and I'd be ready to write a check for any remaining federal tax due after the credit has been applied.
I really wish dual motor and performance pricing was already announced so that a bunch of us could plan accordingly.

burdogg | 2018年2月1日

Just thought I would bump this up, as all things are cyclical and this is bound to be coming.

Not to mention, I would rather deal with this question than what has been showing up lately...

andy.connor.e | 2018年2月1日

@burdogg

I dont think i could agree more.

johnse | 2018年2月1日

@greg @TSLAholic
Please be aware that the IRA machinations being discussed were ways to increase total tax liability, which is about determining if you have enough total liability to get the full tax credit.

Adjusting withholding only affects how much the IRS gets each month (also if you make quarterly tax payments, same thing applies), but does not generate additional taxable income.

burdogg | 2018年2月3日

Bump as there is still misinformation out there and misunderstanding on this whole tax credit and phase out etc...

burdogg | 2018年2月4日

Needs another bump

burdogg | 2018年2月4日

Guess I bumped this thread 1 hour too soon - as same question popped up - man this really is cyclical around here :)

I think we are herding cats....

oragne lovre | 2018年2月5日

This thread is so helpful to prospective 3 buyers that I also want to help bump it up, if burdogg doesn't mind.

skim1281 | 2018年2月5日

anyone know if income type matters or not? (IE: Capital gains from stock sales)

andy.connor.e | 2018年2月5日

Not sure whats so hard about looking at the number in Box #2 on your W-2, and subtract from that number what makes it zero, up to 7500.

deemo | 2018年2月5日

Don't forget 1099s in addition to W-2.

dkabq | 2018年2月5日

It based on taxes owed line 47 on the 1040(if using long form) or line 45 on 1040NR.
it gets a little more complicated if using it for business purpose or if you have additional credits examples: lines 58 thru 54 of 1040 long form.

If you have complicated taxes please talk to a tax consultant.
so it includes capital gains and losses to calc taxes owed. also you may want to look at form 8936.

burdogg | 2018年2月5日

Also what we have not discussed that taxes are changing - so some of the assumptions above are off "old" tax tables. So realize that you may have less tax burden than you did before and may have to account for that.

dkabq | 2018年2月5日

@burdogg is correct. taxes are changing your tax liability could be different this year rather than last year. You still need to owe at least $7500 in taxes to be able to use the $7500 credit.

stevenmaifert | 2018年2月5日

FYI - The 2017 IRS Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit is due for release on 02-08-18. Ref: https://www.freefilefillableforms.com/#/fd/forms.availability

ReD eXiLe ms us | 2018年2月12日

Nine pages deep simply cannot be allowed bump.

andy.connor.e | 2018年2月12日

Taking extra money out of each paycheck to get it all back with the tax credit is not accumulating any MORE money. You're paying the government more tax money that you otherwise would not have been paying anyway. Net-Zero gain.

gbb0131 | 2018年2月12日

Finally had my ah-ha moment and understood how to figure how much i would get back with the $7500 credit.

Gregergregen | 2018年2月12日

Definitely appreciate this, thank you burdogg.

A bummer for me because at most I've only owed around $600. Even if I got the halved credit, I don't think I would be able to utilize it.

burdogg | 2018年2月12日

What do you mean by owed? Does that mean that is what you had to write a check for? Or is that the total tax liability from your income.... Just want to make sure we are on the same page.

burdogg | 2018年2月21日

This is sitting on page 12 and we have had another discussion and misinformation in there on the tax credit - that it phased out after just 1 quarter.

So in need to try to keep things correct, and maybe, just maybe prevent more tax topics...ok who am I kidding....

andy.connor.e | 2018年2月22日

best course of action, stop responding to tax topics. If people have tax questions they should visit their local city hall, or perhaps contact a financial advisor.

njchillie | 2018年2月22日

Maybe it’s just me, but I cannot understand how someone who does not have a Federal tax liability of at least $7500 can afford a $50,000 (or even a $35,000) car.

andy.connor.e | 2018年2月22日

If you have enough money saved, your income is irrelevant.

njchillie | 2018年2月22日

So, Andy, you’re thinking the people asking about the $7500 tax credit will be paying cash?

andy.connor.e | 2018年2月22日

Not necessarily. Someone who doesnt have $7500 in federal liability, could put down a $20,000 down payment to make the monthly payments affordable.

slingi2017 | 2018年11月21日

Accounting companies near me:
http://yourbooksontime.com/accounting-firms

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