Tax credit question...

<div class='quotetop'>QUOTE(yarzy @ Aug 28 2006, 08:45 AM) [snapback]310505[/snapback]</div>

1) Correct
2) Not correct. Usually credits only offset the taxes you owe. If you don't owe any taxes, then there is nothing to offset. So if you owe nothing at the end of the year, you will get back $0 at the end of the year.

 

You won't get back more than what you've paid. If you've paid (or will pay by the end of the year) more than $3150 in 2006, and if you have or will have the Prius in your possession before the end of September, and if you are not subject to the AMT, you will get $3150 back. If your total taxes paid in 2006 are less than $3150, but the other two criteria are still met, you will get back what you've paid.

Example 1: It's January, 2007. You have a fairly low-income job, and the total income tax you paid in 2006 was $900. You got the Prius in August, and are not subject to the AMT. You get back $900.

Example 2: January '07, and you paid $3151 in 2006. Prius in August, no AMT. You get $3150 back.

Example 3: You didn't work in '06, so didn't pay taxes. You don't get anything back.

hope this helps

 

<div class='quotetop'>QUOTE(ericbecky @ Aug 28 2006, 09:48 AM) [snapback]310507[/snapback]</div>

That's not exactly right either. If you had taxes withheld, you could get up to a $3000 refund

and BTW, as of 08/09/06 the IRS is still not listing the 2007 Prius as eligible for the credit.

 

<div class='quotetop'>QUOTE(Jim1eye @ Aug 28 2006, 10:03 AM) [snapback]310515[/snapback]</div>

So are we supposed to get a form from Toyota or the IRS? Or do we just fill in a line on the 1040 and attach a standard IRS form? The dealer messed up my address when I bought the car (they fixed it a week later, but a lot of things can happen in a week). Should the paperwork for the IRS arrive shortly after buying or closer to the end of the year?

 

Seems like the comprehensive answer to this question is to ask a tax professional. The amateur opinion is that most people will not get the full refund, due to them either having numerous deductions already for kids and the like, or due to them making too much and the AMT eating into it.

The general rule will be: If you aren't hit by AMT, and after all of your deductions you have paid more than 3150 in taxes, then you can get the full refund.


PS - MODS: We should put up a sticky for the tax credit question.

 

<div class='quotetop'>QUOTE(yarzy @ Aug 28 2006, 09:45 AM) [snapback]310505[/snapback]</div>

Something needs to be made clear that seems to be a common misconception. I'm don't think you have this misconception, yarzy, but I just wanted to make it clear to everyone..

For the purposes of taxes owed, the amount withheld from your paycheck goes into the same pot as the money you pay on April 15. It's all the same. All that's happening on April 15 is that you're making up for the difference between the money you actually owe and the money you've already paid the government (by way of paycheck withholdings).

Let's do a simplified example. You get paid twice a month and, in each pay check, you have $250 withheld for taxes by the federal government. At the end of the year, you do your taxes and find that, given your income, you owe the federal government $6000 in taxes. Well, you owe the government $6000 and you've paid them $6000 (over the course of the year via paycheck withholdings), so the amount you owe them on April 15 is $0. This does not mean that you can't take the Prius credit. Your tax liability still is $6K and you've paid the gov't $6K, but it's just been during the year. In that case (and assuming no other AMT or tax credit wackiness), you'd get a refund for $3150.

I hope this makes (at least a little) sense. There have recently (on this board) been some issues brought up with child tax credits; I would say that the issue is far from settled and, like others before me, I would advise people to talk to an accountant to figure out exactly what their situation is.

Gotta love the tax code!

 

<div class='quotetop'>QUOTE(yarzy @ Aug 28 2006, 06:45 AM) [snapback]310505[/snapback]</div>

As the others have written, it all depends on what you mean by "owe"; the income tax that was withheld from your paychecks affects the amount of money that goes between you and the US Treasury when you file your return, but it does NOT affect your ability to benefit from the hybrid credit. And there are some niggly issues pertaining to other tax credits that you may wish to take as well as the Alternative Minimum Tax (AMT).

It may be helpful to look at it as follows, if you assume that your federal tax situation, the tax rates, and the tax forms will all be about the same in 2006 as they were in 2005. In that case, pull out your 2005 Form 1040. The key numbers for you to look at are on lines 46 and 56. Line 46 is the amount of your tax that is eligible to be reduced by credits. Take line 56 and add your hybrid credit to it (because you'll be listing the credit on line 55). If your new line 56 amount (with your hybrid credit included) is more than your line 46, you will not get the full benefit of the credit. (As line 57 says, "If line 56 is more than line 46, enter 0.") If it's less, you'll get the full benefit.

Even if your 2006 tax situation will be quite different than your 2005 situation, that method will help you if you can estimate the key numbers on your 2006 Form 1040.

We will file for the hybrid credit with IRS Form 8910. The version of the 2005 form to be used by people whose 2006 tax years end before December 31 is already available (PDF file, Adobe Reader required).

Note, though, that if the Alternative Minimum Tax applies to you, disregard all of this; you probably won't benefit from the credit anyway.

 

I agree that consulting your tax professional is a good idea.

But if you want some more clarifications you can also check out this article from William Perez at About.com.

 

Unfortunately as I sit here and look at form 8910 (Alternative Motor Vehicle Credit) and form 6251 (Alternative Minimum Tax) I think many people will be surprised come tax time. I know I was after plugging in 2005 numbers. To those who think it is as simple as looking at lines 56 and 46 on your 1040, or comparing your taxes to the credit, woe unto you at tax time. Our family passes both of those tests, and is thousands of dollars from having to pay the AMT, but will not come close to claiming the entire $3,150 credit. It is hard to describe, but several factors reduce the credit available. One of the largest factors is the number of exemptions being claimed - the more kids you have the smaller your credit (to the tune of $800 each if you are in the 25% bracket - between 60K and 120K).

It is a complicated calculation and one needs to analyze whether to itemize, whether to pay property taxes in the current year, whether to increase pre-tax withholding before yearend, etc.


Bruce
Sorry to rain on anyone's parade.
(I rained on my own parade after looking into this)

 

<div class='quotetop'>QUOTE(rob_md @ Aug 28 2006, 10:17 AM) [snapback]310519[/snapback]</div>

Standard IRS forms. No one will send you a special form.

Tom

<div class='quotetop'>QUOTE(ericbecky @ Aug 28 2006, 09:48 AM) [snapback]310507[/snapback]</div>

The only exception that comes quickly to mind is the Earned Income Credit, which is designed to put money into the pockets of low income wage earners.

Tom

 

Update - There is some risk in using last year's forms to estimate this year's situation. The AMT Exemption increased from $58,000 to $62,550 for married couples filing jointly. This $4,550 will decrease your tentative minimum tax by $1,183 (assuming you are in the 26% bracket - as many middle income taxpayers are). In my situation, that made the entire credit available again.


Your mileage may vary,
Bruce

 

I asked this in one of the other tax credit threads but I think I'm more apt to get an answer in this one:

Does anybody know if the IRS W-4 Withholding Calculator takes AMT into consideration? I check our withholdings every few months and used the full hybrid credit amount when I checked it in June. So I based the changes to our withholding on the results from the IRS calculator.

EDITED: I just checked and the IRS calculator refers possible AMTers to another publication which then refers to another publication. So the short answer is no, it does not decide for you whether or not you will be subject to AMT.

 

Hi All

Here is a site where you can do an estimate on your fed tax liability for 2006 & to see if you do receive the full benefit of the $3,150 tax credit.
Being retired, it looks like a winner for us !

http://personal.fidelity.com/planning/tax/...able.shtml.cvsr