EV tax credit increase income options?

[2HOTinPHX]

We suddenly find ourselves eligible for the 7500.00 EV tax credit. Our original Chevy Bolt EUV purchased in 2022 was totaled early this month on my way from my last day of work. Rough start to retirement. We replaced it with same just a few days ago.
We do not have enough income to have a tax bill large enough to use the tax credit so we are looking at options to increase income so we do.
We could potentially cash out our I Bonds. We have 2500.00 from 2002 that have accrued 4200.00 in interest. We some recently purchased too we could cash out.
We could also look at a Roth conversion but it seems like we would have to pay estimated taxes by Jan 15 then wait to get those back as a refund on taxes?
Or perhaps a retirement account withdrawal and then reinvest as Roth IRA perhaps?
Maybe need to check with a tax expert?

 

[Romer]

Roth conversion is easiest if you have Roth and IRA at same place. You can pay taxes as part of conversion. At schwab, I do it all online and stipulate how much tax to take out. Next would be withdrawal from an IRA and then roll over to Roth the net proceeds after the withdrawal. You can pay taxes then as well.

 

[GaryInCO]

I bought my Tesla before the tax credits were created, but I'll run into a similar problem with the IRA tax credits from my recent solar installation. I think it won't be a big issue for me since I have rental income, so I'll have taxes.

 

[audreyh1]

You don’t have to pay estimated taxes by Jan 15 if you’ve already met safe harbor rules based on last year’s taxes. I suspect this is your case?

I didn’t realize there was a minimal amount of income to qualify for the tax credit. Oh, I see a minimum level of taxes.

 

[Midpack]

You don’t have to pay estimated taxes by Jan 15 if you’ve already met safe harbor rules based on last year’s taxes. I suspect this is your case?

I didn’t realize there was a minimal amount of income to qualify for the tax credit. Oh, I see a minimum level of taxes.

If you have a Fed tax liability of less than $7500, you can’t take full advantage of the $7500 credit in 2023. It’s a credit, not refundable. However that changes in 2024.

 

[2HOTinPHX]

You don’t have to pay estimated taxes by Jan 15 if you’ve already met safe harbor rules based on last year’s taxes. I suspect this is your case?

I didn’t realize there was a minimal amount of income to qualify for the tax credit. Oh, I see a minimum level of taxes.

Not sure what you mean by safe harbor rules? Could you please explain.

 

[audreyh1]

So the safe harbor rules are:

1. You have paid your prior year tax liability, (or 110% of your prior year tax liability if AGI was over $150K for MFJ) by Jan 15.

2. You have paid 90% of your current year tax liability by Jan 15.

Then you will owe no penalty and you can pay the remainder on April 15.

Generally if you pay estimated taxes they expect the payments to be in roughly equal installments or you can file Form 2210 to show that you paid sufficient estimated taxes associated with each quarter where the income occurred.

If your taxes were paid via withholding, the timing doesn’t matter at all but you have until Dec 31 for withholding.

 

[2HOTinPHX]

So the safe harbor rules are:

1. You have paid your prior year tax liability, (or 110% of your prior year tax liability if AGI was over $150K for MFJ) by Jan 15.

2. You have paid 90% of your current year tax liability by Jan 15.

Then you will owe no penalty and you can pay the remainder on April 15.

Generally if you pay estimated taxes they expect the payments to be in roughly equal installments or you can file Form 2210 to show that you paid sufficient estimated taxes associated with each quarter where the income occurred.

If your taxes were paid via withholding, the timing doesn’t matter at all but you have until Dec 31 for withholding.

Thanks for the info. Our taxes are paid thru paycheck withholding's. Our taxes are pretty low due to the standard deduction, HSA and 401K contributions made thru the year. I think our 2023 tax liability is only about 5K. Which we have paid a few hundred over already.
So with this unplanned EV credit seems we should be able to do a Roth conversion or distribution and not worry about estimated taxes?
Same if we decided to cash out I-bonds?

 

[audreyh1]

Thanks for the info. Our taxes are paid thru paycheck withholding's. Our taxes are pretty low due to the standard deduction, HSA and 401K contributions made thru the year. I think our 2023 tax liability is only about 5K. Which we have paid a few hundred over already.
So with this unplanned EV credit seems we should be able to do a Roth conversion or distribution and not worry about estimated taxes?
Same if we decided to cash out I-bonds?

So have you already paid via withholding the total amount in taxes you owed for 2022?

If so, I would say you are golden. No need to pay estimated taxes. Balance not due until April 15.

Using the 2023 numbers is trickier because you would have to reach that 90% taxes paid number including any new income you generated. Correction: I suppose the EV tax credit would wipe most of this out already. Sorry, forgot about that part.

 

[scrinch]

If the OP has a tax credit of $7500 and withholding of $5000+, there's no need to even think about safe harbor tax payments, is there? As I understand the situation, this year's net tax owed is going to be only a little above zero, and with $5000 already withheld, OP is due for a big refund.

Does the $7500 tax credit count toward how much tax must be paid during the year? I ask because I have a solar tax credit this year that represents roughly 25% of my expected total tax liability. My tax withholdings have only totaled 75% of that tax liability. I'm assuming that is okay since, combined, the withholding and tax credit should result in zero owed in April.

 

[Midpack]

If the OP has a tax credit of $7500 and withholding of $5000+, there's no need to even think about safe harbor tax payments, is there? As I understand the situation, this year's net tax owed is going to be only a little above zero, and with $5000 already withheld, OP is due for a big refund.

Does the $7500 tax credit count toward how much tax must be paid during the year? I ask because I have a solar tax credit this year that represents roughly 25% of my expected total tax liability. My tax withholdings have only totaled 75% of that tax liability. I'm assuming that is okay since, combined, the withholding and tax credit should result in zero owed in April.

We're probably in agreement..

The EV tax credit cannot exceed the tax liability, so there won't be any refunds due to the EV tax credit itself. If your net taxes are $4500 before the credit, your credit is only worth $4500, you don't get a $3000 refund also. Another individual with a net zero tax liability before the EV credit, would get $0 credit even if he/she bought an eligible EV - so no $ benefit at all.

As you say, if the OP's net tax liability after the EV credit is zero, he/she will get a refund of the $5000 withheld.

 

[2HOTinPHX]

So have you already paid via withholding the total amount in taxes you owed for 2022?

If so, I would say you are golden. No need to pay estimated taxes. Balance not due until April 15.

Using the 2023 numbers is trickier because you would have to reach that 90% taxes paid number including any new income you generated.

Do you see the distinction?

Thanks again for the reply..

I think I see the distinction.

Yes 2022 taxes paid in full.

For 2023 since we are looking to generate more taxable income but with no payroll deductions being taking from this source we have to make sure the 5300.00 in payroll taxes we already paid covers 90% of taxes we would need to pay if we add new taxable income. So it would only allow a small increase in our taxable income?

 

[audreyh1]

Thanks again for the reply..

I think I see the distinction.

Yes 2022 taxes paid in full.

For 2023 since we are looking to generate more taxable income but with no payroll deductions being taking from this source we have to make sure the 5300.00 in payroll taxes we already paid covers 90% of taxes we would need to pay if we add new taxable income. So it would only allow a small increase in our taxable income?

I updated my answer above. Because of the tax credit and what you have paid via withholding YTD you are already way ahead of your tax liability for 2023 as far as I can see, so no worries about paying any estimated taxes.

 

[2HOTinPHX]

We're probably in agreement..

The EV tax credit cannot exceed the tax liability, so there won't be any refunds due to the EV tax credit itself. If your net taxes are $4500 before the credit, your credit is only worth $4500, you don't get a $3000 refund also. Another individual with a net zero tax liability before the EV credit, would get $0 credit even if he/she bought an eligible EV - so no $ benefit at all.

As you say, if the OP's net tax liability after the EV credit is zero, he/she will get a refund of the $5000 withheld.

Thanks... watching YouTube videos and this graphic was very helpful although the numbers are different.

So we are just looking to add a little to the tax liability to get closer to the full 7500 credit.

 

[Cat-tirement]

As you probably know, if you have an ACA insurance plan and get premium tax credits, and your income ends up higher than what you estimated, you may have to pay back some of that PTC at tax time. This PTC payback can also offset the EV tax credit. This is my situation as I bought an EV earlier this year. I have done pro forma returns in Turbo Tax to verify this.

 

[2HOTinPHX]

As you probably know, if you have an ACA insurance plan and get premium tax credits, and your income ends up higher than what you estimated, you may have to pay back some of that PTC at tax time. This PTC payback can also offset the EV tax credit. This is my situation as I bought an EV earlier this year. I have done pro forma returns in Turbo Tax to verify this.

Thanks for the reply. Fortunately for us we start ACA insurance Jan 2024.