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acw380
New Member

How do I make sure I can take full advantage of the current or upcoming EV tax credit? Is it as simple as updating 4(b) on my W4 to allow for an extra $7500 deduction?

I plan on buying a new electric car next year. Although we do not have a guarantee on the new proposed bill of updated tax credits, I will still focus on grabbing the existing $7500 for an eligible vehicle. I never owe taxes and always get a refund. Can I just update my W4 to have a large deduction to make sure I get to use my full tax credit?
5 Replies
VolvoGirl
Level 15

How do I make sure I can take full advantage of the current or upcoming EV tax credit? Is it as simple as updating 4(b) on my W4 to allow for an extra $7500 deduction?

No.  It's not whether you get a refund or tax due.   It's if you have a tax liability on your income.  Look at your 1040 line 24 for total tax. 

Critter-3
Level 15

How do I make sure I can take full advantage of the current or upcoming EV tax credit? Is it as simple as updating 4(b) on my W4 to allow for an extra $7500 deduction?

Do NOT make any changes on the W-4 ... if you do and forget to put things back you will be a world of hurt next year.  

 

What you need to do is make sure you have enough federal tax liability on the return to use the credit up completely ... what you don't use you lose.   If needed increase your tax bill buy converting some IRAs to ROTHS or selling stock, etc.  

acw380
New Member

How do I make sure I can take full advantage of the current or upcoming EV tax credit? Is it as simple as updating 4(b) on my W4 to allow for an extra $7500 deduction?

Right, I want to make sure I dont leave any on the table. I hadnt thought about converting IRAs over. Is there any other ways I can increase my tax liability (while not giving the government extra money)? I was thinking I need to defer paying taxes so I will owe something instead of getting my usual tax refund.

Opus 17
Level 15

How do I make sure I can take full advantage of the current or upcoming EV tax credit? Is it as simple as updating 4(b) on my W4 to allow for an extra $7500 deduction?


@acw380 wrote:

Right, I want to make sure I dont leave any on the table. I hadnt thought about converting IRAs over. Is there any other ways I can increase my tax liability (while not giving the government extra money)? I was thinking I need to defer paying taxes so I will owe something instead of getting my usual tax refund.


Your tax liability is what you actually owe to the IRS over the entire year.  If you had $6000 of paycheck withholding and get a $1000 refund, your liability was $5000.  Likewise, if you had $4000 of withholding and you owed $1000 when you filed your return, your liability was $5000.  

 

If you are asking how to raise your tax liability for 2021, you don't have much time left.  Basically, you need to have more income or fewer tax deductions.  If you itemize your deductions, you could (theoretically) delay your December mortgage payment until January to have less deductible interest (at the cost of your credit score of course) or you could delay end of year charity donations until 2022.

 

More income, well that's always the trick, isn't it.  Assuming you can't go out and win the lottery in the next 28 days, about the only easy solution is to convert IRA money to a Roth IRA.  You don't have to convert your entire account, if converting part will create the income you need.

 

If you are divorced and sharing custody, you could change up who claims the children as dependents.  This is complicated, and fraught with potential problems, so should not be done without a complete understanding of the situation, and I probably shouldn't even have mentioned it.

 

If you want to buy the car and claim the credit in 2022, remember the child tax credit, dependent care credit are going back to normal and there is no 4th stimulus, so your tax liability might be higher next year (if kid credits are reducing your tax liability for 2021).  You could also increase your income for 2022 by pre-paying tax deductible items like property taxes and charity donations in 2021.    Another way to increase your taxable income for 2022 would be to change from making IRA or pre-tax 401(k) contributions and contribute to a Roth IRA or Roth option in your 401(k) plan instead.  That way you still get the retirement savings, and you won't pay any tax on that money when you withdraw in the future, and you won't pay taxes now if you can cancel those taxes out with the EV credit.  But there is probably not enough time left in 2021 for this strategy to help you claim the credit on a 2021 EV purchase. 

 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Opus 17
Level 15

How do I make sure I can take full advantage of the current or upcoming EV tax credit? Is it as simple as updating 4(b) on my W4 to allow for an extra $7500 deduction?


@acw380 wrote:

Right, I want to make sure I dont leave any on the table. I hadnt thought about converting IRAs over. Is there any other ways I can increase my tax liability (while not giving the government extra money)? I was thinking I need to defer paying taxes so I will owe something instead of getting my usual tax refund.


Another thing--if you have stocks or other investments that are not in a tax-defered plan, you could sell them now to realize your capital gains and have the capital gains tax covered by the EV credit.  Just be sure to not re-buy the same investments for at least 31 days.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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