Electric Vehicle tax refund. How to maximize the full $7,500 credit?

[vpujols]

Yes, the child tax credit for $1,000 on line 52.
Line 56 was $4824

[Texas Roger]

So your tax before credits on line 44 was $5824. This has no affect on any of the 2018 calculations but maybe it helps you understand how the calculations are made. The credits are subtracted from the tax before credits on line 44. The tax on line 44 for 2018 would be $5095 based on $62,728 AGI. That is the number the credits are subtracted from and limits your EV credit to $3095 when you claim the $2000 child tax credit or $5095 if the other parent claims the dependency exemption and you do not get the child tax credit. Whether or not you claim the child tax credit makes no difference to how much refund you get but it might give the other parent an additional $2000 of refund.

One other observation. I assume you are the custodial parent of the child because the child lived with you more than half the year. This would be the only way you would qualify for head of household filing status. Allowing the other parent to claim the dependency exemption would not change your ability to file as head of household. It just gives the other parent the ability to claim the child tax credit.

[vpujols]

Thank you @Texas Roger I appreciate your help and guidance..!!

But allowing the other parent to claim the child would then be that I miss the opportunity to get the $2,000 for the child tax credit....even less refund....

One other thing I can try is stop making my 401-k payments for December alone, which may not make much of a difference at the end (about $2,000 in contributions) but that would bring the AGI a bit higher?

I do not feel really happy knowing that I may only get about $3,095 for the EV credit, knowing this credit is $7,500 for grabs....!!

[Texas Roger]

Letting the other parent claim the child tax credit would have no affect on your refund. You would just be trading the $2000 of child tax credit for another $2000 of EV credit. A $2000 reduction in 401K would increase your taxes by $440 thus increasing your EV credit by $440. This also would have absolutely no affect on your refund and you would lose the benefit of $2000 of tax deferred investment and maybe company match if they match your contribution.

[vpujols]

I get your points. It seems like I'm screwed anyways in terms of getting the full EV credit :(

[SteamTrain]

....another idea. IF you are sitting on any mutual funds, or stocks with gains, you could sell some now to use the credit and you won't be hit on them later.  

A test file I tried (similar to yours, but I really cannot match exactly.  Income ~63,000 before adding gains).
10,000 of Short term gain would raise your tax by ~1,600.
10,000 of Long term gain would raise your tax by ~500. (presumably because of the initial lower tax on some of it).
20,000 of Long term gain would raise your tax by ~2,100.

[vpujols]

I have some company stocks that I haven't touched in a long time, but this stock has not done well at all, in fact it has gone south....

I will call now to see if any gains anyways..thanks for the thought..!

[fireworks]

I'm still quite confused about how to claim the entire EV Tax Credit of $7,500.  Let's take a simple scenario: as an employee, my pay is $110,000 and my employer is withholding my federal taxes, which amounts to $20,000.  When I file my returns next year, it is determined that I've to pay an additional taxes of $2,500. So, does that mean my tax obligation is $2,500 and even if I claim the non-refundable EV Tax Credit of $7,500, I get only $2,500 portion of it, which results in $0 owed to IRS?  Or, my tax obligation is $22,500 (I already made payments of $20,000 via paycheck withholdings) and I can still claim the entire EV Tax Credit, resulting in a IRS refund of $5000 ($7,500 credit minus the additional taxes of $2,500). Basically my question is does the money I owe to IRS include the amount that was already withheld and paid by my employer?  

[SteamTrain]

It would be the 22,500 that the 7500 is used against....so you would get to use all of it.   And, in your example, would get a refund of some of your withholding already paid in.

The tax liability that the credit is used against,  is the tax amount before considering how much you've already paid in thru withholding or any estimated tax payments.

______________________________

Note: Using the 2020 tax software, I found that your tax liability would only be about 17,500 for a single person, no children and 110,000 wages......But if you do have additional income from other things, like investment capital gains, interest, dividends, Mutual Fund distributions or retirement account distributions, then yeah, your tax liability could get higher   (And of course, absent any congressional tax changes later this year...those cant be predicted, but would be unlikely to remove much more than a couple thousand of that total lability number)

[fireworks]

@SteamTrain 

"The tax liability that the credit is used against,  is the tax amount before considering how much you've already paid in thru withholding or any estimated tax payments." 

I didn't quite understand this statement. Are you saying that the addition taxes ($2,500 in my example) is the tax liability and I can claim only that much in EV Tax Credit? 

As mentioned in my example, let's say, my total tax that I owe to the IRS comes out to $22,500 (of which $20,000 I already paid in form of withholdings, and $2,500 is the additional taxes I owe, say because of capital gains). 

Thanks you for responding! 

[SteamTrain]

The $22,500 !

That 22,500 would be the tax liability you had "before" considering the 20,000 withholding that already done done.

.ie....your tax liability is the taxes calculated directly from your "taxable" income

In your example....the 2,500 you are talking about is normally just referred to as the final balance due (if you didn't have the EV Credit, or any other credits to use)

[fireworks]

Makes sense. Thank you @SteamTrain !

[bllackbeaches]

So, to be clear, in order to get the full $7,500 after buying an EV that allows for $7,500 - for example, the Toyota RAV 4 PRIME, you have to OWE something already? For example: if I owed the IRS $7,500, then the EV tax refund would only suit me in that circumstance? Because I am considering getting an EV, I'm one of those people who doesn't owe any taxes. So technically, for me in my case, since I don't owe anything on my taxes I would not be eligible to receive $7,500 because I don't already owe the IRS something. Is that correct? Because that doesn't seem fair, especially when the whole reward for driving an EV should be to suit the environment and "going green" - please, correct me if I'm wrong, but there is so much misinformation out there. 

[NCperson]

@bllackbeaches -  look at Line 22 of your Form 1040..... the EV tax credit can not reduce Line 22 below 0.  that is how to think about this. 

Whether you 'owe' or are due a refund is irrelevant