This credit goes all the way back to 2006, providing a tax credit for making energy-saving improvements to a taxpayer’s home. This tax benefit was supposed to expire after 2021 but a law change has given the credit renewed life and substantially enhanced it beginning with 2023.
If you had to make a list of people who changed the world essentially just by existing, Henry Ford’s name would likely be on it.
Most people know him from history as the founder of the (appropriately named) Ford Motor Company. Here, he developed the assembly line method of mass production. Not only did this help cut costs enormously, creating the first automobile that average Americans could afford to buy, but it also revolutionized the manufacturing industry. The computer or mobile device that you’re reading this on would have cost a significantly larger amount of money (than it already does) had the assembly line not been invented.
Especially in the early days of a business, it can be natural to want to handle as many day-to-day tasks yourself – bookkeeping included. Sometimes, it’s in an effort to save money. Often, entrepreneurs just feel like they’re in a better position to handle everything themselves. Regardless, this situation does seem to play out regularly.
Although the credit for purchasing a new electric vehicle can still be as much as $7,500, Congress has added some new stringent qualifications as to which vehicles qualify, and for the first time Congress has limited who qualifies for the credit by barring the credit to higher income taxpayers.
But first a little background. Prior to this change, a vehicle qualifying for the credit needed only to be a 4-wheel vehicle, with a minimum battery capacity of 5 kilowatt hours and a gross weight of less than 14,000 pounds. There was also a manufacturer limit of 200,000 units, after which the credit phased out over the subsequent four quarters. There were no qualification requirements for the purchaser of the vehicle.
New Qualifications – Under the new law, starting in 2023 the vehicle and the buyer must meet far more stringent requirements for a taxpayer to qualify for the clean vehicle tax credit.
Purchaser’s Income Limit – No credit is allowed for any tax year if the lesser of the modified adjusted gross income (MAGI) of the buyer for the:
- Current tax year, or
- The preceding tax year exceeds the threshold amount as indicated below. There is no phaseout and just one dollar over the limit means no credit will be allowed. Thus, Congress has essentially eliminated the credit for higher income taxpayers.
- Married Filing Joint or Surviving Spouse – $300,000
- Head of Household – $225,000
- Others – $150,000
MAGI is the buyer’s adjusted gross income increased by any foreign earned income and housing exclusions and excluded income from Guam, American Samoa, the Northern Mariana Islands, and Puerto Rico.
Vehicle Qualifications – To qualify, the vehicle must:
- Be a4-wheel vehicle.
2. Bea Street Vehicle that was manufactured primarily for use on public streets, roads, and highways.
3. Have a Minimum Battery Capacity of 7 kilowatt-hours.
4. Be acquired for Original Use by the taxpayer. Original use means that the vehicle has never been used by any taxpayer for any purpose. A vehicle is not a new clean vehicle if another person has ever purchased or leased the clean vehicle and placed it in service for any purpose. Where a vehicle is acquired for lease to another person, the lessor is the original user.
5. Have had its Final Assembly in North America, which includes the 50 states, the District of Columbia, and Puerto Rico, Canada, and Mexico. Where the vehicle was manufactured can be determined from the 17-digit vehicle identification number (VIN). The VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) also provides final assembly location information. The website, including instructions, can be found at VIN Decoder.
The VIN is permanently attached to a vehicle in several locations, appearing on the dashboard for most passenger vehicles and on the label located on the driver’s door frame. The VIN is also located on the window sticker of new vehicles and often appears on the vehicle listing on dealers’ websites.
- Meet the MSRP requirement – The manufacturer’s suggested retail price (MSRP) cannot exceed:
- $80,000 for vans, SUVs, and pickups
- $55,000 for other vehicles
The MSRP will be on the vehicle information label attached to each vehicle on a dealer’s premises. The MSRP for this purpose is the base retail price suggested by the manufacturer, plus the retail price suggested by the manufacturer for each accessory or item of optional equipment physically attached to the vehicle at the time of delivery to the dealer. It does not include destination charges or optional items added by the dealer, or taxes and fees.
Even when a vehicle is purchased for less than the MSRP, the credit limitation on the price of the vehicle is based on the manufacturer’s suggested retail price (MSRP), not the actual price paid for the vehicle.
- Meet theCritical Mineral and Battery Components test – Congress, in an effort to bring the battery manufacturing for electric vehicles to the United States, included a requirement that a percentage of critical minerals needed to manufacture batteries be extracted or processed in the U.S. or a country with a free trade agreement with the U.S. or recycled in the U.S. It also requires a percentage of battery components be manufactured or assembled in North America. The initial percentage is 50% and 100% after 2028.
Luckily for a buyer the dealer must provide a report that certifies the vehicle meets these requirements by specifying the amount of credit the vehicle qualifies for.
Seller Provided Report – The seller of the vehicle is required to furnish a report to the buyer and the IRS that includes:
- The name and taxpayer identification number of the buyer;
- The vehicle identification number (VIN) of the vehicle (it will be required on the tax return to claim the credit), unless, by U.S. Department of Transportation rules, the vehicle is not assigned a VIN;
- The battery capacity of the vehicle;
- Verification that the original use of the vehicle commences with the taxpayer; and
- The maximum Clean Vehicle Credit allowable to the buyer with respect to the vehicle.
List of Qualifying Vehicles – The IRS provides a list of eligible vehicles on its website.
Transfer of Credit to the Dealer – After 2023, the taxpayer purchasing the vehicle, on or before the purchase date, can elect to transfer the clean vehicle credit to the dealer from whom the vehicle is being purchased in return for a reduction in purchase price equal to the credit amount.
A buyer who has elected to transfer the credit for a new clean vehicle to the dealer and has received a payment from the dealer in return, but whose MAGI exceeds the applicable limit, is required to recapture the amount of the payment on their tax return for the year the vehicle was placed in service.
If you have questions about these new rules on the clean vehicle credit, please give this office a call.
Individuals and small businesses should consider various ways of starting off on the right foot for the 2023 tax year.
When you are attempting to defer the taxability of a capital gain, save money for your children’s future education or plan your retirement finances, you may do so in several ways, including investing in the stock market, buying real estate for income and appreciation, or simply putting money away in education savings accounts or retirement plans. Knowing how these various tax savings vehicles and income deferral opportunities function is important for choosing the ones best suited to your circumstances. Let’s begin by examining the tax nuances of IRA accounts.
FTX Group, also officially referred to as FTX Trading Ltd., is a cryptocurrency company that is currently in the process of bankruptcy proceedings. In addition to previously operating as a cryptocurrency exchange, it was also a crypto hedge fund.
It was originally founded in 2019 and hit its stride just a few years later in 2021. At one point, it had over a million users and was considered to be the third-largest exchange of its type in existence.
My, what a difference a few years can make.
There is an important issue related to filing the 2022 S-corporation (Form 1120-S) and partnership (Form 1065) tax returns that requires the cooperation of the shareholders and partners.
Over the last decade, in particular, the definition of the term “career” has changed.
Rather than being employed by a single entity for which you receive a W2 at the end of the year, many are now participating in the “gig economy” in a variety of ways. They’re not just working a day job. They’re also driving for a ride-sharing service like Uber. They’re delivering food for companies like DoorDash. They’re leaning into the versatility that the fast-paced digital world has brought with it, enjoying the type of freedom that people didn’t previously have.
Have you seen those ads on television or received email solicitations promoting a large tax credit? The large tax credit they are referring to is the employee retention tax credit (ERTC). The ERTC is a government-sponsored program to keep workers employed during 2020 and 2021 because of the COVID pandemic by providing refundable tax credits to employers that kept their workers on payroll during the COVID crisis. Unlike most tax credits, this is a credit against the employer payroll taxes.
Even though this credit only applies for 2020 and part of 2021 for most businesses, if your business qualifies, and you haven’t already claimed the credit, it can still be claimed by amending the payroll tax returns for those years. So that you can determine if you might qualify for the credit and avoid being misguided by the credit promoters, the following is a summary of the qualifications to claim the ERTC.
The credit is available to all employers regardless of size, including tax-exempt organizations, tribal businesses, and businesses in U.S. Territories. There are only two exceptions: State and local governments and their instrumentalities. For eligible employers, the credit is available for wages paid: