2011 TAX TIME Questions

[dsr302]

After reading thru the thread, I want to make sure that I understand the $7500 Fed tax credit thing better.

I'm going to use imaginary numbers but let's say that based on factoring all of the salary, dividend income, savings interest income, mortage interest and charitable deductions, I owe $20,000 in taxes.....if have my employer withhold $19,000, I would then have to pay $1000 in taxes.

How does the $7500 credit change these numbers?.....based on my above scenario, can I still have my employer withold the $19,000 and still make my charitable contributions to claim them as well as claim my mortgage interest and still collect my $7500 or would I only get the $1000 that I noramlly would have paid?.......if that's the case, do I need to dial back that $19,000 employer withholding and dial back the charitable contributions to claim the entire $7500?

 

[lpickup]

After reading thru the thread, I want to make sure that I understand the $7500 Fed tax credit thing better.

I'm going to use imaginary numbers but let's say that based on factoring all of the salary, dividend income, savings interest income, mortage interest and charitable deductions, I owe $20,000 in taxes.....if have my employer withhold $19,000, I would then have to pay $1000 in taxes.

How does the $7500 credit change these numbers?.....based on my above scenario, can I still have my employer withold the $19,000 and still make my charitable contributions to claim them as well as claim my mortgage interest and still collect my $7500 or would I only get the $1000 that I noramlly would have paid?.......if that's the case, do I need to dial back that $19,000 employer withholding and dial back the charitable contributions to claim the entire $7500?

The only number that matters is the $20,000, and since that is > $7500, you're set. In your scenario you'd get a REFUND of $6500 ($7500 - the $1000 you owe).

 

[planet4ever]

let's say [...] I owe $20,000 in taxes.....if have my employer withhold $19,000, I would then have to pay $1000 in taxes.

How does the $7500 credit change these numbers?.....based on my above scenario, can I still have my employer withold the $19,000 and still make my charitable contributions to claim them as well as claim my mortgage interest and still collect my $7500 or would I only get the $1000 that I normally would have paid?

No problem. You aren't paying $1000, you are (hypothetically) paying $20,000. It's just that you were nice enough to let Uncle Sam use most of it before your taxes were due. That was your money that you earned. It doesn't matter that the government grabbed it before you ever saw it.

The restriction on the credit is that it can't be greater than the total amount of tax you pay for the tax year, however or whenever you pay that money.

Ray

 

[DesertDenizen]

There seems to be some confusion on tax liability vs taxes withheld. Tax liability is what matters, not was withheld. If you have 20k in tax liability it makes no differences if you had 21k withheld during the year or zero withheld. The tax payment or refund executed at tax filing just settles things up. So if you have 20k in liability and bought a Leaf you will get the full benefit of the $7500 credit. If you had 21k withheld, you will get a $8500 refund. If you had zero withheld you will owe $12500.

 

[solartim]

If you have 20k in tax liability it makes no differences if you had 21k withheld during the year or zero withheld.

Our money was put into our bank account yesterday. Sweet deal. Just one point, if you don't withhold enough taxes over the year, there are substantial penalties, but of course not vice-versa.

 

[DesertDenizen]

If you have 20k in tax liability it makes no differences if you had 21k withheld during the year or zero withheld.

Our money was put into our bank account yesterday. Sweet deal. Just one point, if you don't withhold enough taxes over the year, there are substantial penalties, but of course not vice-versa.

Of course. I was just trying to focus on the issue at hand, which is that tax liability is not affected by withholding amounts. I once did consulting for Great Britain and they file their taxes on a form the size of a postcard. Amazing, isn't it? Get to work politicians!

 

[dsr302]

Thanks all for clearing things up for me...your explainations and information on this was very helpful.

I agree DesertD.....my confusion was between tax liability and taxes withheld.

Everyones' explainations makes perfect sense....I had run a test using my hypothetical numbers through TurboTax and the results proved to be exactly what you all had described.....I would have received back $6500. I just wanted to make sure I understood the 'why', as well as to make sure TurboTax was not wrong.

Now, I just have to receive/purchase my '12 Leaf and continue to withhold/donate-charitably as normal through the year and wait for my refund early next year....though I know at that time I will be sweating whether taking the $7500 tax refund will flag my return for an IRS audit

 

[TNleaf]

... It's just that you were nice enough to let Uncle Sam use most of it before your taxes were due. That was your money that you earned. It doesn't matter that the government grabbed it before you ever saw it.
...
Ray

Yeh, I tried explaining this to a few people. They thought they were getting "free money" and they loved getting a big check after doing their taxes. I tried to make them realize that it was THEIR money, and Uncle Sam has basically been holding onto their money for a year. Also, Uncle Sam doesn't pay you interest, so you just gave him an interest free loan.

Moral of the story, you should consult a tax professional and adjust your W4 withholding if you plan on getting a huge return, then go invest the money for that year... every little bit helps.