Tax credit discussions

[HBGuy]

47% of U.S. taxpayers pay no Federal income tax, and over half of all employed persons pay more in Social Security tax than they pay in Federal income tax. So, some may be surprised when they find that they can't claim the full $7500 tax credit. Again, it's a credit against tax owed, and isn't refundable.

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[snikt]

47% of U.S. taxpayers pay no Federal income tax, and over half of all employed persons pay more in Social Security tax than they pay in Federal income tax. So, some may be surprised when they find that they can't claim the full $7500 tax credit. Again, it's a credit against tax owed, and isn't refundable.

I almost always end up having to pay, and my tax burden is over 10K. Does this mean I would basically get a 10K refund next year? ($2500 for Colorado + $7500 Federal)

 

[generaltso]

I almost always end up having to pay, and my tax burden is over 10K. Does this mean I would basically get a 10K refund next year? ($2500 for Colorado + $7500 Federal)

If your federal tax burden is over $10k, you should be able to use the full $7500 tax credit. I can't speak to the Colorado credit.

 

[buffasnow]

The problem with the Roth solution (for me) is that my company does not offer one. Additionally, because of this there is no company matching on such contributions which is an overall negative impact. In any event, were I to start a Roth program I would still need to suspend my company 401k contributions. So as I wrote earlier, In order to take full advantage of the tax credit I would need a raise. ?

If you contribute more than required to get the company match, perhaps you could reduce your pretax 401k contributions to the minimum to get your match and then invest in a Roth IRA to save approximately what you are no longer putting in the 401k, but in a way that will not reduce your taxable income? Not sure if that will make enough of a difference for you.

 

[HuntingPudel]

If you contribute more than required to get the company match, perhaps you could reduce your pretax 401k contributions to the minimum to get your match and then invest in a Roth IRA to save approximately what you are no longer putting in the 401k, but in a way that will not reduce your taxable income? Not sure if that will make enough of a difference for you.

I am pretty sure that I would need to completely scotch my 401k contributions in order to elevate my tax burden enough. I am thinking that I am better off in the long run to leave things as they are. Maybe if I bust my butt more I can get some bonus money that will increase my tax burden. ?

 

[deadduck]

This is probably an issue for a lot of business owners, people with 1099 employment, and retirees, but I can't imagine not getting the 7500 credit as somebody with full time w2 employment.

I'm W2, I have a deferred compensation program that I throw $26K/year at. If I do a catch-up (3 years option), which I'm eligible for, that climbs to, I think $39K. I would, I think just barely make it to the full amount because there's some other deductions that play into things.

And in further weirdness, because I sold some property this year, I have a one-time income bump that nukes my eligibility to either some, or all, of the California programs. Next year I'd should be eligible for everything.

 

[dbsb3233]

I almost always end up having to pay, and my tax burden is over 10K. Does this mean I would basically get a 10K refund next year? ($2500 for Colorado + $7500 Federal)

Probably, but to be clear...

The $2500 CO state tax credit is refundable, meaning you get to claim all of that regardless of what your CO state income tax liability is. So if, for example, your total CO state income tax liability is $1800, it shrinks to -$700 after the credit.

The (up to) $7500 federal income tax credit is nonrefundable, meaning if your total federal income tax liability is less than $7500, you only get to offset whatever amount it is and get to zero total tax liability.

Also make sure you understand what total "income tax liability" is. It's your TOTAL TAX line. Whether you actually get money back in a refund depends on how much you've already paid in throughout the year via withholding (or other method).

 

[dbsb3233]

Also don't forget the 30% federal tax credit for buying and installing (electrical work) a home charger (up to $1000 credit). Applies in whatever year you buy the charger and have the electrical work done to install it.

 

[Skelton]

47% of U.S. taxpayers pay no Federal income tax, and over half of all employed persons pay more in Social Security tax than they pay in Federal income tax. So, some may be surprised when they find that they can't claim the full $7500 tax credit.

It's definitely something for people to confirm for their situation. Fortunately, it should be pretty easy for everyone to check since it's right around tax time.

I've got an old W2 where I happened to pay almost exactly $7500 in federal income tax. My annual salary was also almost exactly what I'm paying for the Mach E now. If you're regularly employed (not in retirement, for example), and your entire annual income is the cost of the car... I'd recommend a different vehicle.

 

[mburtsvt]

It's definitely something for people to confirm for their situation. Fortunately, it should be pretty easy for everyone to check since it's right around tax time.

I've got an old W2 where I happened to make pay exactly $7500 in federal income tax. My annual salary was also almost exactly what I'm paying for the Mach E now. If you're regularly employed (not in retirement, for example), and your entire annual income is the cost of the car... I'd recommend a different vehicle.

Unless you can create a tax liability. Over 59 and a half and on social security, take out enough from your 401(k) to create the tax liability and re invest it in a standard stock account. Basically your getting a 401(k) withdrawal with no tax burden, (offset by the $7500 credit) In addition in California you qualify for "income based additional rebates" base on your 2019 tax return. With all of the rebates and tax incentives it's close to $15,000. I'm calling that plan "A".

 

[Frabaky]

I recently moved to the US, and so far, I am in shock at how many different things are taxed in this country. Taxes are the very first thing with which I became familiar. I didn't think that a regular payment could be so complicated. You have to calculate everything, collect all receipts, and try to make a mistake. My friend, who has lived in the states for a long time, was the first thing he told me about how to make a paystub. He said it was essential to help me keep track of my tax payments and monitor my income and expenses. I did as my friend advised, and it made things a lot easier for me.

 

[EELinneman]

I recently moved to the US, and so far, I am in shock at how many different things are taxed in this country.

Careful or they will tax you for that criticism! It's nothing new. Even the Beatles wrote a song Tax Man decades ago about the taxes. Of course, they still cashed the royalty checks for "All you need is love"!

 

[HuntingPudel]

Careful or they will tax you for that criticism! It's nothing new. Even the Beatles wrote a song Tax Man decades ago about the taxes. Of course, they still cashed the royalty checks for "All you need is love"!

Heh, yeah, but The Beatles were writing about the (new for the time) UK taxes. 95% on rock artists. "Here's one for you, nineteen for me. 'Cause I'm the Tax Man." That's why a lot of the artists from the British Invasion made residences outside of the UK and tried to hide as much money as possible.

 

[engnrng]

I don't see how Roth contributions would increase my tax burden. I guess I just need a raise in order to increase my tax burden.

"conversion", not "contribution"
If you don't understand the difference, consult an enrolled agent or tax accountant. It might be worth a lot of money to you to have a full and correct understanding. Taking tax advice from unqualified Forum Posters is a risky business!!!!! A significant number of these posts are flat out wrong, misleading, or misstated.

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