Disappointed in my tax refund results with $7500 EV credit.

[timk225]

I'll have to obfuscate the numbers a bit for anonymity purposes, of course, but I can give a good general idea so you know what to expect.

My wife and I got our taxes all done on Saturday. After all was said and done, except the $7500 EV credit, we were looking at a refund of $200-something dollars. In addition to my normal W-2 income, I had done some 1099 work during the year which hurt our refund. Our total tax owed on our income after the standard $24K deduction was a bit over $7K.

Then we added in the $7500 EV credit, and since our total tax based on our income was a bit less then the $7500 limit, we got that smaller number. So that number plus the original $200-something number makes for a nice $7.something K refund!

So why do I sound disappointed? In my flawed logic and non-tax educated mind, I had looked up the tax tables a while back. I saw that an AGI of $50,000 paid X for tax, and reducing it by $7500, an AGI of $42500 paid $900 less.

So I thought a $7500 CREDIT would result in a $900 or so REFUND, and I was all ready to come on here and make a nice rant topic about it. But as things worked out, I got more money back, which will help other things to happen more easily than I had previously assumed. So it was a good day.

 

[Nocturnal]

 

[redan]

So I thought a $7500 CREDIT would result in a $900 or so REFUND, and I was all ready to come on here and make a nice rant topic about it. But as things worked out, I got more money back, which will help other things to happen more easily than I had previously assumed. So it was a good day.

It's a tax credit, not a tax deduction. Big difference, as you saw!

 

[caskater47]

Yea a tax credit is a subtraction of the final tax liability. What you're thinking of is a tax deduction. With a deduction you're still paying a percentage of tax so it's not a good benefit comparatively. The credit is straight cash back as you discovered.

 

[caskater47]

My wife and I got our taxes all done on Saturday. After all was said and done, except the $7500 EV credit, we were looking at a refund of $200-something dollars. In addition to my normal W-2 income, I had done some 1099 work during the year which hurt our refund. Our total tax owed on our income after the standard $24K deduction was a bit over $7K.

FYI. Under the new tax law 1099 income is the only way to get deductions anymore. If you're doing it right the 1099 income will give you an even bigger refund. I suggest you hire an accountant for next year. My accountant has saved me tens of thousands of dollars over the years.

 

[thx1139]

Can I suggest to you that you should review your withholding and adjust so that you never get a refund again. NEVER. Even though I am someone who believes in more taxes, I dont believe you should let the government hold onto your $ until April. That is an interested free loan to the government. In fact reverse it. Make sure you pay 90% of what you expect your tax bill will be or make sure to pay what you paid the previous year. Then you wont get hit with a penalty and will send in a check on April 15th for the interest free loan you received the previous year.

 

[kengchang]

and this has to do with Tesla because....?

 

[mike123abc]

The problem is that the EV tax credit is non refundable. If you do not have a tax bill for the year of $7500 or more you will just lose the amount of the credit over your actual tax.

So, if your total tax bill for your income was $6000, you would get $6000 tax credit, the other $1500 is lost.

If you had paid $6000 in through the year in withholding, you would get a refund of $6000.

If you had nothing withheld through the year you would owe nothing and receive nothing.

 

[caskater47]

The problem is that the EV tax credit is non refundable. If you do not have a tax bill for the year of $7500 or more you will just lose the amount of the credit over your actual tax.

So, if your total tax bill for your income was $6000, you would get $6000 tax credit, the other $1500 is lost.

If you had paid $6000 in through the year in withholding, you would get a refund of $6000.

If you had nothing withheld through the year you would owe nothing and receive nothing.

Not quite true. You can split the credit over multiple years. We had to do that this year because our tax liability was only $4k. A good accountant will know how to handle it.

 

[MXWing]

Not quite true. You can split the credit over multiple years. We had to do that this year because our tax liability was only $4k. A good accountant will know how to handle it.

Can you provide a clue on how this is done?

To my knowledge there isn’t carry over for the $7,500 credit.

 

[caskater47]

Can you provide a clue on how this is done?

To my knowledge there isn’t carry over for the $7,500 credit.

I wish I knew as I would share but that's why I pay an accountant to do my taxes.

 

[trm2]

FYI. Under the new tax law 1099 income is the only way to get deductions anymore. I

No. Your itemized deductions only need to be over the standard deductions.

Not quite true. You can split the credit over multiple years. We had to do that this year because our tax liability was only $4k. A good accountant will know how to handle it.

No. A good accountant will know that you CAN'T carryover this tax credit. Check the instructions for IRS form 8936.

 

[redgt]

if you don't have $7500 in tax liability how can you afford a tesla?

 

[kengchang]

Not quite true. You can split the credit over multiple years. We had to do that this year because our tax liability was only $4k. A good accountant will know how to handle it.

ITC can be carry over, not EV credit. Better fix your tax filing error before IRS catch up to you.

 

[caskater47]

No. Your itemized deductions only need to be over the standard deductions.

That's not accurate. The new law eliminates most categories of what classifies as a deduction for anyone that is a W-2 employee. That's why they increased the standard deduction amount to 24k. The wanted to get rid of "loopholes" and raise the standards deduction for everyone to offset the difference in hopes to not piss everyone off come April. Only that's a major problem for someone like me with lots of unreimbursed business expenses. Working as a 1099 makes me self employed and therefore able to recoup all the costs I previously had under the old law.

To put it simply, under the old law as a W2 employee I may have had 40k+ in deductions to reduce my tax liability. Under the new law that gets chopped down to about 15k thus making the standard deduction apply and losing nearly 20k in deductions.

The only people who win under the law are business owners and sole proprietors.

No. A good accountant will know that you CAN'T carryover this tax credit. Check the instructions for IRS form 8936.

It's also possible I misunderstood what my accountant told me as well.

 

[run-the-joules]

if you don't have $7500 in tax liability how can you afford a tesla?

Hi, I'd like to introduce you to "retired people", "trust fund babies", and other sorts of folks who don't work regular jobs and have the same type of income situation as many of us.

 

[caskater47]

Hi, I'd like to introduce you to "retired people", "trust fund babies", and other sorts of folks who don't work regular jobs and have the same type of income situation as many of us.

I'm none of those things. I work three jobs currently and my wife works full time as well. But the industry I work in makes me pay for a lot stuff out of my pocket which hits pretty hard at the end of the day. I also live in CA where the cost of living is high and state income tax is no longer deductible which means I pay double the tax on the same income and screws people like me even harder.

 

[lolder]

Unused EV tax credit cannot be carried over.

 

[brkaus]

The problem is that the EV tax credit is non refundable. If you do not have a tax bill for the year of $7500 or more you will just lose the amount of the credit over your actual tax.

So, if your total tax bill for your income was $6000, you would get $6000 tax credit, the other $1500 is lost.

If you had paid $6000 in through the year in withholding, you would get a refund of $6000.

If you had nothing withheld through the year you would owe nothing and receive nothing.

It has nothing to do with withholding. It only has to do with tax liability.

 

[run-the-joules]

I'm none of those things. I work three jobs currently and my wife works full time as well. But the industry I work in makes me pay for a lot stuff out of my pocket which hits pretty hard at the end of the day. I also live in CA where the cost of living is high and state income tax is no longer deductible which means I pay double the tax on the same income and screws people like me even harder.

I wasn't trying to make an exhaustive list of people who might drive Teslas without having $7500 in federal tax liability, just giving a couple of examples.