Solar Credit

[lesliegoulden]

I installed solar in 2020 and my credit is 10,560.  I only show receiving $3200 of the credit and $6300 carried over for 2021 but I still owe $3500 in taxes......what am I doing wrong??  Im self-employed

[LenaH]

There is a limitation of tax credit based on your tax liability and other credits taken on your tax return for 2020.

As per Form 5695 Instructions, your solar credit would be less the amount of the following credits on your tax return.

• Foreign Tax Credit, Schedule 3 (Form 1040), Part I, line 1 
• Credit for Child and Dependent Care Expenses, Schedule 3 (Form 1040), Part I, line 2 
• Credit for the Elderly or the Disabled, Schedule R (Form 1040), line 22 
• Nonrefundable Education Credits, Schedule 3 (Form 1040), Part I, line 3 
• Retirement Savings Contributions Credit, Schedule 3 (Form 1040), Part I, line 4 
• Nonbusiness Energy Property Credit, Form 5695, Part II, line 30 
• Alternative Motor Vehicle Credit, Personal use part, Form 8910, Part III, line 15 
• Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles), Personal use part, Form 8936, Part III, line 23 
• Child Tax Credit and Credit for Other Dependents:

  • If filing Form 2555: Pub. 972, Child Tax Credit and Credit for Other Dependents Worksheet, line 16.

  • If not filing Form 2555: Pub. 972, Line 14 Worksheet, line 14

• Mortgage Interest Credit, Form 8396, line 9 
• Adoption Credit, Form 8839, line 16 
• First-Time Homebuyer Credit, Form 8859, line 3 

The remaining solar credit due to the credits listed above, is carry forwarded to 2021.

[Critter-3]

More direct answer is  ... the solar credit can only negate your FEDERAL taxes  so the SE taxes are still owed.  Review the return carefully. 

[lesliegoulden]

That being said, all of my income is SE......so I wont get any of the credit? Doesnt seem right that SE persons dont get a credit.  Guess its time to get that PLLC 

[Opus 17]

---

@lesliegoulden wrote:

That being said, all of my income is SE......so I wont get any of the credit? Doesnt seem right that SE persons dont get a credit.  Guess its time to get that PLLC 

---

No, you did not understand @Critter-3 's comment.

When you are self-employed, you pay income tax on all your net income (including investments, prizes and so on).  You also pay 15% self-employment tax on your net self-employment income--this is the self-employed person's equivalent of social security and medicare withholding.

The solar energy credit can be applied to your income tax, even if the income was from self-employment, but it can't be credited against the extra 15% SE tax.  You will eventually use up the credit.

Furthermore, making yourself an LLC won't change a thing, since an LLC is a disregarded entity, and you will still pay SE tax on your net profit.  You could choose to be treated for tax purposes as an S-corp--which would make you a W-2 employee of the corporation--but that has a whole ton of downside that you need to thoroughly investigate before you make that decision.