How to maximize my ev tax credit

Forum|Forum|4 years ago
July 19, 2022
11 replies
100 views

I'm completely confused by how to take advantage of the ev tax credit for the new 2022 ev I just purchased. I typically get a refund and last year received a $6k refund. I understand this is generally not considered good practice by financial planners but I prefer not to owe the government come April. 🙂 However, if my understanding is correct, this means that I would not get any of my credit when I file since it is not refundable. So, I have tried to adjust the deduction on my w4 form field 4b to compensate for the refund I expect in addition to the tax credit and it has had very little effect on my paychecks as I would have expected.

I have read the previous answers and am still confused by they mainly seem to answer what NOT to do but not what TO do. But I am very ignorant to taxes and hope that you all could help me understand my options better.

Not A Product Question

Critter-3

Level 15

What you typically get for a refund is immaterial for the discussion/use of the EV credit and you don't need to change anything on your withholding for this tax year and you really should not make any withholding changes. What you do need to do is have enough TAX LIABILITY to use the EV credit in full since any unused credit is lost.

So start by looking at the 2021 form 1040 line 18 ... that is the amount on the 2021 return that could be negated by the 2021 credit if you had bought in 2021. Estimate how much tax you will owe for 2022 and if the EV credit is higher than the line 18 tax bill then you need to increase your tax bill to fully use it up and not lose any of it. Ways to increase income is to earn more, sell stock at a profit, take a taxable IRA/retirement distribution or do a ROTH IRA conversion, etc.

Mike9241

Level 15

Getting a refund has nothing to do with utilizing the EV credit. what you need is a tax liability after certain refundable credits as high as the EV credit. any EV credit not used in the year acquired is lost. the EV credit utilized

as a reference using the 2021 1040 and related forms that amount would be line 18 from form 1040 less the following credits on schedule 3 - lines 1 through 4, 6d, 6e, and 6I; and Form 5695, line 30.

example: assume your tax liability determined as above is $7,000 your EV credit is $7,500 your withholding is $10,000. the EV credit reduces your tax liability to $0 so you get a $10,000 refund because your withholding exceeds your net tax liability. $500 of the EV credit is lost

Mike9241

Opus 17

Level 15

Your tax liability is only indirectly related to your refund. Your tax liability is what you actually pay to the IRS net after all payments, credits and refunds. For example, if you paid $10,000 in withholding and estimated payments and got a $6000 refund, your tax liability was $4000. On the other hand, if you had $3000 in withholding and paid an extra $1000 with your tax return, that would also be a tax liability of $4000.

Your EV credit can't be more than your tax liability. The other answers told you where to find it on last year's return. You will have to determine whether this year is likely to be similar or different.

Note that if you are self-employed, your tax liability for the EV credit is only income tax. Self-employment tax is not included in the calculation of your income tax liability.

4everinbetaAuthor

Level 2

This is really helpful information. I'm still a little unclear as to how I would apply the credit. For example, last year my ta liability was ~$26k and should be around the same this year. So, if I am understanding correctly, this would mean I would get the full $7500 for federal (plus $2500 for state b/c I live in Colorado). So, my question is on my 2022 returns is this EV credit applied as a deduction?

Again, I'm really sorry fo my ignorance.

Opus 17

Level 15

@4everinbeta

The credit is a credit. Credits are calculated on schedule 3. Your income tax is calculated on form 1040. After your tax is calculated, any credits from schedule 3 are subtracted from the tax to arrive at your final income tax. Your final income tax is compared with your withholdings and any excess withholding is returned to you as a refund.