Strategies for generating a 2022 tax liability - to claim as mush as possible of the $7,500 tax credit

[MonorailGold]

I'm going to pose this question to my accountant as well. It may come into sharper focus in Feb/March when we prepare our 2021 taxes.

I'd like to claim as much of the federal tax credit of $7,500 as possible. to do so, I believe I need to have a tax liability up to $7,500.

Wife's 401k pre-tax withholding is set to capture the maximum allowed. I suspect the next step is to modify her W-4 form so less federal taxes are withheld from each paycheck (she gets paid once a month, so the earliest change we can make will be for the Feb 1, 2022 paycheck). For health reasons, my income comes from a long-term disability insurance policy and SSDI benefits.

This is in preparation for the MME CR1 expected by this summer.

What other tax strategies have others used?

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[Ride_the_lightning]

Switch to Roth 401k or do a partial IRA conversion to Roth.

 

[Ride_the_lightning]

Also your tax liability has nothing to do with your withholding. You don’t have to “owe” taxes.

 

[RickMachE]

I'm going to pose this question to my accountant as well. It may come into sharper focus in Feb/March when we prepare our 2021 taxes.

I'd like to claim as much of the federal tax credit of $7,500 as possible. to do so, I believe I need to have a tax liability up to $7,500.

Wife's 401k pre-tax withholding is set to capture the maximum allowed. I suspect the next step is to modify her W-4 form so less federal taxes are withheld from each paycheck (she gets paid once a month, so the earliest change we can make will be for the Feb 1, 2022 paycheck). For health reasons, my income comes from a long-term disability insurance policy and SSDI benefits.

This is in preparation for the MME CR1 expected by this summer.

What other tax strategies have others used?

You don’t understand how the EV tax credit works. To use it, you must have a tax liability. Your wife's job generates that. What she pays in tax withholding is irrelevant. If line 24, Total Tax, is equal to or greater than $7,500, you're all set.

Yesterday I converted part of an IRA to Roth to generate enough tax liability to cover this, plus the 30% credit for installation of the charging station (which expired yesterday).

 

[ChuckA]

You don’t understand how the EV tax credit works. To use it, you must have a tax liability. Your wife's job generates that. What she pays in tax withholding is irrelevant. If line 24, Total Tax, is equal to or greater than $7,500, you're all set.

Yesterday I converted part of an IRA to Roth to generate enough tax liability to cover this, plus the 30% credit for installation of the charging station (which expired yesterday).

I did the same thing. I converted enough IRA into a Roth IRA to provide a liability cushion and will contribute to a 2021 IRA if I increased my income too much. Of note is the deadline for a Roth conversion for 2021 was yesterday.
The question was posed and answered in a prior post.

 

[MonorailGold]

You don’t understand how the EV tax credit works. To use it, you must have a tax liability. Your wife's job generates that. What she pays in tax withholding is irrelevant. If line 24, Total Tax, is equal to or greater than $7,500, you're all set.

Yesterday I converted part of an IRA to Roth to generate enough tax liability to cover this, plus the 30% credit for installation of the charging station (which expired yesterday).

Thanks all for the helpful comments. I'm going to work with my account for 2022 taxes and focus on Line 24 - Total Tax.

 

[kungfutea]

If the BBB somehow past, you won't have to worry about this. The 7500 will be a refundable credit.

 

[Jimrpa]

If the BBB somehow past, you won't have to worry about this. The 7500 will be a refundable credit.

Pretty sure that BBB will pass if they put in subsidies to encourage development of a coal-based economy, including adoption of coal-powered automobiles. Liberally sprinkle coal dust all over it and it passes in a heartbeat ?????

 

[Murse-In-Airy]

In order not take advantage of the full credit, for line 24 to be less than 7500, your AGI has to be less than $66K (for married/filing jointly) or $54K (if married filing separately. Though it gets slightly more complicated with child tax credits and such, so I’d just go look at like 24 of last year’s form. Your refund (how much you overpaid) is irrelevant.

 

[ChuckA]

Pretty sure that BBB will pass if they put in subsidies to encourage development of a coal-based economy, including adoption of coal-powered automobiles. Liberally sprinkle coal dust all over it and it passes in a heartbeat ?????

My advice is purchase the MME if you think it’s worth the MSRP. I would treat the $7500 rebate in your tax planning, which in January, gives you plenty of time to massage. I have zero confidence that the rebate will even exist in BBB. Plan for the worst but happily accept the best.

 

[kkgg]

- Convert 401k to ROTH and max out
- do not contribute to health savings account for this year(it is not taxable)

 

[Deleted member 4669]

how can someone afford a Mach-e yet not generated the needed tax debt to get the full rebate?

 

[KevinS]

Being an election year, I wouldn't use any other determination than that you want the car and can financially afford to do so without tax credits. EVs have unfortunately become a political issue and trying to figure out what legislation will pass in 2022 is a crazy-making exercise.

 

[RickMachE]

how can someone afford a Mach-e yet not generated the needed tax debt to get the full rebate?

Be retired. A retiree can have 7 figures in savings and not pull in enough interest / dividends / capital gains to pay ANY income tax. So if they buy an EV, they need to then generate either income, or capital gains. Options to do so include converting a traditional retirement account (401K / IRA) to Roth, or generating capital gains by selling investments. Since the latter will likely be at the same tax rate that the retiree would have in any year, they should consider the retirement account conversion to Roth first.

We did exactly that on 12/31/21, and will do it again this year if necessary if we get take delivery of the 2022 we ordered last May (we bought a cancelled order in July), or a Ford Lightning.

 

[sukhoi_584th]

I'm going to pose this question to my accountant as well. It may come into sharper focus in Feb/March when we prepare our 2021 taxes.

I'd like to claim as much of the federal tax credit of $7,500 as possible. to do so, I believe I need to have a tax liability up to $7,500.

Wife's 401k pre-tax withholding is set to capture the maximum allowed. I suspect the next step is to modify her W-4 form so less federal taxes are withheld from each paycheck (she gets paid once a month, so the earliest change we can make will be for the Feb 1, 2022 paycheck). For health reasons, my income comes from a long-term disability insurance policy and SSDI benefits.

This is in preparation for the MME CR1 expected by this summer.

What other tax strategies have others used?

If your taxes are low enough you're worried about creating a $7500 tax liability, then doing pre-tax 401k contributions is probably not the best use of your money. You should do Roth 401k or IRA.

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