Tax Credit Application 2006

You won't need to do anything with the tax credit till you file your income taxes, which usually would be April 2007. At that time, there will probably be a line or two on the standard forms.

You don't have to provide any paperwork; your bill of sale is your proof if the IRS requires it during an audit.

 

Problem with this tax credit is it's only useful if you actually have a LOT to write off. For me the single person standardized deduction is $4200, so I need to write off just over $1000 more worth of stuff just to see anything! Now when the clothing/item people leave those bags I take good record of what i give (more so than just giving away junk I don't want, got $250 from the last one).

I'm in a very small catagory of people too that doesn't pay rent, I'm not paying off a mortgage, I paid for my prius in one chunk cash, no school loans to pay back or anything else. No kids, so no deductions there. So unless I can write off expenses of going to work like gas (I have to ask my cousin the CPA about this, although I have heard that I can write off bridge tolls), I'm not going to benifit much at all from this tax break.

 

<div class='quotetop'>QUOTE(MikeSF @ May 9 2006, 01:10 PM) [snapback]252212[/snapback]</div>

Dood, it sounds like you don't understand how the credit works at all.

You mention the standard deduction and an additional $1k in deductions.
The tax credit has nothing to do with deductions.

1) You calculate what you owe to the government. Deductions are part of the calculation.
2) You calculate your alternate minimum tax.
3) You subtract $3150 from what you owe but only down to your alternate minimum tax.
4) You compare the amount from step 3 to what you have had withheld.
If you withheld more than you owe, you get the difference back.
If you withheld less than you owe, you pay the difference to the IRS.

 

It's quite common for people to get confused between deductions and credits.
Credits are subtracted from the amount you owe (your tax), and have nothing to do with "writ[ing] things off."
Deductions are subtracted from your earned income, which becomes your federal adjusted gross income.
This is quite an important distinction, because many states use the federal adjusted gross income to calculate the state taxes. The most common problem arises when dealing with education credits or education deduction, sometimes taxpayers can see a net tax savings taking the education deduction rather than the hope or lifetime learning credits.
That being said, as long as you're not in the AMT group of taxpayers you will realize significant tax savings if you owe more than $3150 in taxes. A good starting point for an estimate is on line 57 on form 1040, or line 28 on 1040a, or line 10 on 1040EZ. Subtract $3150 from that amount, if that amount is less than $3150, then the best that can happen is to reduce that amount to 0 (zero). I'll leave it as en exercise to the reader to determine the refund amount.

 

Gotcha, ok, meh.. I won't get much in the way of a refund since I typically don't pay that much.

 

<div class='quotetop'>QUOTE(MikeSF @ May 9 2006, 07:51 PM) [snapback]252442[/snapback]</div>

When you say you don't pay that much, do you mean that when you calculate your taxes and get to the bottom of the form you don't have to write a big check? Or do you mean that you don't have very much withheld from your paychecks?
Like I said earlier look at your 2006 tax form, and find the total tax on the appropriate line for the form. That's where the $3150 is subtracted, not from the amount you owe the federal government by April 15th.
When I deal with clients I've often discovered that they confuse the amount of tax owed on April 15th with the amount ot total tax they pay throughout the year via withholding.

A back of the napkins estimate: a single person who purchases only needs to make in the neighborhood of $32,000 to realize a huge refund (nearly all the tax they owed for the year), assuming no deductions on Schedule A and no other tax credits.
If you're married filing joint or head of household the numbers can increase significantly depending on the number of dependents.
Maybe I'll make a spreadsheet and post it if there's enough interest.

 

<div class='quotetop'>QUOTE(jonlink @ May 9 2006, 05:12 PM) [snapback]252451[/snapback]</div>

THis is a good thread and has some good answers. I'll be getting a new prius shortly and have been wondering how best to get the tax credit. Last year, I payed $3,906 in income taxes, with 4,556 withheld, so I got a return of around $650. Can I keep doing what I'm doing to get the credit next year, and get a much larger refund or do I need to change my withholdings so that I will actually owe cash come tax time next year and then deduct the tax credit of the prius?

Many thanks in advance!

 

<div class='quotetop'>QUOTE(scionfriar @ May 15 2006, 09:42 AM) [snapback]255735[/snapback]</div>

Keep doing what you're doing and get the check

 

<div class='quotetop'>QUOTE(Zzyzx @ May 15 2006, 12:54 PM) [snapback]255744[/snapback]</div>

or reduce your withholding by about ~$1000 per quarter for the 3 remaining quarters of 2006.
(See your HR person to arrange this.)

 

Personally, I'm a cash now kind of guy. Keep as much of your money as you can so you can spend/invest as you see fit.

 

<div class='quotetop'>QUOTE(jonlink @ May 15 2006, 02:22 PM) [snapback]255796[/snapback]</div>

Also, the IRS pays 0% interest on the money you withhold. If you don't mind loaning money at 0% then you will have a big refund on April 16th. Amazingly, I just read that so many people love the refund because they can't save during the year. Except that the IRS is saving it for them. If you had invested the same amount as was withheld you would end up with more on April 16th.

 

<div class='quotetop'>QUOTE(Rick Auricchio @ May 7 2006, 11:09 PM) [snapback]251280[/snapback]</div>

Do you know that for sure? I thought that I read somewhere (I might be wrong) that manufacturers would send letters to purchasers of hybrids that bought them before the 60,000 unit cap was reached.
Toyota/Lexus will likely have sold 60,000 hybrids (for 2006) around July/Aug.; in which case anyone who buys theirs by the beginning of the next quarter (Sept. 1) will be eligible for the credit. There has been talk that the 60,000 cap will be lifted, in which case that won't be a concern (I am sure the day that Toyota hits 60,000 will be posted on this site.)
Also, for anyone here who falls into that tax bracket, there is also talk about eliminating the AMT.
(as always, ask your accountant- do not rely on PriusChat exclusively for your tax advice!) :lol:

<div class='quotetop'>QUOTE(sub3marathonman @ May 15 2006, 03:12 PM) [snapback]255820[/snapback]</div>

That's quite true- much has been written about how terrible Americans are at saving.

 

<div class='quotetop'>QUOTE(larkinmj @ May 15 2006, 12:40 PM) [snapback]255832[/snapback]</div>

That's not how it works under the current law. If, as projected, Toyota/Lexus sells its 60,000th hybrid in the current quarter (April-June), the full credit of $3150 will be available to people who bought Priuses on or before September 30, 2006. Then 50% of the credit ($3150 for a 2006 model or whatever it is for a 2007 model) will be available to those who buy from October 1, 2006 through March 31, 2007. Finally, 25% of the credit will be available from April 1 through September 30, 2007. Since it should be clear from the bill of sale on which date you bought your car, no letter is needed.

<div class='quotetop'>QUOTE(larkinmj @ May 15 2006, 12:40 PM) [snapback]255832[/snapback]</div>

That's sure not going to happen any time soon; it would cost the Treasury way too much. However, the president is expected to sign a bill this week that would basically freeze the AMT at about its current level of intrusiveness for the 2006 tax year only. For 2007, it all depends on what Congress does in the future.