Tax credit strategies

[Nyck80]

Hi,

I took delivery of my 2022 Taycan a month ago and absolutely love it, what a great car!

This might be a stupid question for some, but I would like to maximize the $7500 EV tax credit. But I actually don’t know if I would owe the full amount of taxes at the end of the year to take full advantage.

What strategies did you use in order to maximize the credit? Reduced the taxes taken out of paycheck, sold some stocks for capital gains…?

Any recommendation is welcome. Thanks!

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[nickmdp]

I think you may be misunderstanding how the tax credit works. You don't need to owe $7500 at the end of the year, you need to have a total tax liability of $7500 to take advantage of it.

For example, in a world where you've paid exactly $7500 in taxes through the year, you fill out your forms and end up with a $0 return, your return would then increase to $7500 when you put the EV credit in. If your tax liability was less than $7500 for the year (regardless of whether you've paid more or less than that before filing your return), you're only able to claim a credit of what that liability was.

Does that make sense? Probably talk to a tax professional though.

 

[whan]

Use this to figure out what your estimated total federal tax paid will be for the year (put withholding as $0 for now). If it's more than $7.5k you'll be able to get the full credit.

https://www.nerdwallet.com/taxes/tax-calculator

If you're below, yes - selling stock can help increase the federal tax owed due to cap gains (assuming you have cap gains in this market)

 

[Nyck80]

Thanks! Yes, it looks like I misunderstood the tax credit. I thought that it only brings what you owe at the end of the year to zero. Meaning if you owe $3000 on your tax return, you get $3000, if you owe $7500 you get $7500 etc.

I pay way more than $7500 in federal taxes throughout the year. So if I understand correctly, the credit reduces the taxes that I paid by $7500 and therefore could get a refund by (or around) that amount if I paid the right amount of taxes throughout the year.

Taxes was never my strong suit, thanks for clarification.

 

[Tooney]

So if I understand correctly, the credit reduces the taxes that I paid by $7500 and therefore could get a refund by (or around) that amount if I paid the right amount of taxes throughout the year.

The EV tax credit reduces the amount of your federal tax liability. During the year, you may actually pay (through withholding or other tax payments) more or less than your tax liability.

If you look at your 2021 Form 1040, line 18 shows your 2021 tax liability before credits. That tax liability amount is reduced by any child tax credits (line 19), and then is further reduced by other credits, including any 2021 EV tax credit, listed on Schedule 3, and carried forward to line 20.

Just be aware that the above is based on the assumption that the existing EV tax credit is not altered by legislation in 2022.

 

[whan]

Thanks! Yes, it looks like I misunderstood the tax credit. I thought that it only brings what you owe at the end of the year to zero. Meaning if you owe $3000 on your tax return, you get $3000, if you owe $7500 you get $7500 etc.

I pay way more than $7500 in federal taxes throughout the year. So if I understand correctly, the credit reduces the taxes that I paid by $7500 and therefore could get a refund by (or around) that amount if I paid the right amount of taxes throughout the year.

Taxes was never my strong suit, thanks for clarification.

Yes, I figured almost everyone buying Taycans probably paid significantly more than $7500 in tax

I think given we're mid year into 2022 already, I doubt any legislation will change tax credits for EVs purchased in 2022. Before the BBB legislation died, it had both income caps and caps on vehicle MSRP that would have made the taycan ineligible.

I don't know if congress will get anything passed in the near-term, and even if they did in 2022 it'll likely apply starting 2023

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