Taxes, let the good times roll...

mr.radon
mr.radon Solar Expert Posts: 158 ✭✭✭✭✭
in General Solar Power Topics #1
For the first time in a very long time (single parent college student) I paid almost next to nothing in taxes. My effective tax rate this year is 0.23% :D

That 30% tax rebate sure was nice!

When I started my project I was thinking of reducing my Federal Tax withholding at the beginning of the year I planned on doing the install. Boy oh boy am I glad I didn't do that! You can't get back more then you paid in taxes, something that wasn't clear to me till I started filling out my tax return.


Now I need to figure out how to save on taxes next year......
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  • Cariboocoot
    Cariboocoot Banned Posts: 17,615 ✭✭✭
    #2
    Re: Taxes, let the good times roll...
    mr.radon wrote: »
    For the first time in a very long time (single parent college student) I paid almost next to nothing in taxes. My effective tax rate this year is 0.23% :D

    That 30% tax rebate sure was nice!

    When I started my project I was thinking of reducing my Federal Tax withholding at the beginning of the year I planned on doing the install. Boy oh boy am I glad I didn't do that! You can't get back more then you paid in taxes, something that wasn't clear to me till I started filling out my tax return.


    Now I need to figure out how to save on taxes next year......

    Do not move to Canada! :cry:
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  • Photowhit
    Photowhit Solar Expert Posts: 6,006 ✭✭✭✭✭
    #3
    Re: Taxes, let the good times roll...
    mr.radon wrote: »
    You can't get back more then you paid in taxes, something that wasn't clear to me till I started filling out my tax return...

    I'm sure the tax credit can be appiied forward, I cut it real close this year paying just $5 in federal taxes!!!

    I just did taxes Friday so I was sure they could be carried forward,

    line 28 of Form 5695 Residential Energy Credits
    28. Credit carryforward to 2011. If line 27 is less than line 23, subtract line 27 from
    line 23.......................................

    Not sure how it works with the, Making Work Pay Credit.
    Home system 4000 watt (Evergreen) array standing, with 2 Midnite Classic Lites,  Midnite E-panel, Magnum MS4024, Prosine 1800(now backup) and Exeltech 1100(former backup...lol), 660 ah 24v Forklift battery(now 10 years old). Off grid for 20 years (if I include 8 months on a bicycle).
    - Assorted other systems, pieces and to many panels in the closet to not do more projects.
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  • jagec
    jagec Solar Expert Posts: 157 ✭✭
    #4
    Re: Taxes, let the good times roll...
    Photowhit wrote: »
    I'm sure the tax credit can be appiied forward, I cut it real close this year paying just $5 in federal taxes!!!

    I just did taxes Friday so I was sure they could be carried forward,

    line 28 of Form 5695 Residential Energy Credits
    28. Credit carryforward to 2011. If line 27 is less than line 23, subtract line 27 from
    line 23.......................................

    Yes, it can be carried forward.

    Also, it's not that you can't get back more than you paid, it's that you can't get back more than you OWE (AKA "nonrefundable" tax credit).

    So it doesn't matter if your withholding was lower than usual. You still saved exactly the same amount of money. The difference is that it was in your pocket earlier in the year.

    Example: I make $50k a year and owe $5k in taxes after deductions. However, my withholding throughout the year adds up to exactly $5k. Result, I owe $0 on April 15, but I paid a total of $5k in taxes.

    I make $50k a year and owe $5k in taxes after deductions, BUT I also have a solar credit of $5k. My withholding throughout the year still adds up to $5k. Result, I get a check for $5k from the federal government, which exactly makes up for the $5k I paid throughout the year in withholding. However, they won't ever give me back more than I already paid them in withholding.

    I make $50k a year and owe $5k in taxes after deductions, BUT I also have a solar credit of $5k. My withholding throughout the year was reduced to $0. Result, I don't get a check from the federal government, but I saved $5k in withholding throughout the year.
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  • Blackcherry04
    Blackcherry04 Solar Expert Posts: 2,490 ✭✭✭
    #5
    Re: Taxes, let the good times roll...

    I did a little different twist with my tax credit, For 2010 you could convert a Traditional IRA to a Roth IRA and pay the tax in 2 payments in 2011 and 2012. With the tax credit it gives you a opportunity to convert without coming up with the tax out of your pocket and still keep the money to grow tax free. It may seem like a small thing, it reality it could be a huge thing over the years.

    If you have interest in doing this, check with a tax professional as you may still be able to do it before April 18th. I assume you could do the same with some of the other plans, 403b, 401K, etc.
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  • solarvic
    solarvic Solar Expert Posts: 1,071 ✭✭✭✭
    #6
    Re: Taxes, let the good times roll...
    mr.radon wrote: »
    For the first time in a very long time (single parent college student) I paid almost next to nothing in taxes. My effective tax rate this year is 0.23% :D

    That 30% tax rebate sure was nice!

    When I started my project I was thinking of reducing my Federal Tax withholding at the beginning of the year I planned on doing the install. Boy oh boy am I glad I didn't do that! You can't get back more then you paid in taxes, something that wasn't clear to me till I started filling out my tax return.


    Now I need to figure out how to save on taxes next year......

    I got all my fed tax money back for year 2009 and had some left over to roll over for 2010 taxes. Retired in 2010 with some income including pay from job, unemployment insurance, social security and cahed in my 401-k to a roth with partial payment from 401.k and gaswell income. Knew I would need tax breaks, so installed 2 mini air conditionerheatpumps and a hybred water heater. Still got $966.00 refund after paying the tax on the 401-k and got back all the income tax from the state because of too low of an income. Even though Pennsylvania is called the land of taxes they still don,t tax retiired senior citizens income. My tax man told me if I keep my income at the 25,000 figure I won,t have to pay any taxes at all. Plus I can get a $500.00 rebate on my property tax. Main reason I wanted to change 401-k into roth. solarvic
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  • mr.radon
    mr.radon Solar Expert Posts: 158 ✭✭✭✭✭
    #7
    Re: Taxes, let the good times roll...

    I just went back and figured my return if I had not withheld any money this year. You are absolutely right about not getting back more then you OWE. I was wrong...why can't taxes be as simpler.

    I know you can carry it forward from year to year. Nice of the government.

    I guess I am lucky that I have a wife that makes good money and I was able to recoup all the money this year. Since I paid 100% of the solar installation the refund is all mine; I promised to take her out to lunch when the refund is deposited.

    We usually try to shoot for owing about 5% of our tax burden at the end of the year. I have not had a tax refund in 12 years...so this is will be kinda sweet.

    On a side note.
    I had wanted to do this installation in 2009, I even went so far to change my tax withholding. Well three months till the end of the year I had to scramble when I realized I wasn't going to be able to install it in 2009.

    Still, it does feel nice. Now if the other 70% of the investment would give quicker returns...
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  • jcgee88
    jcgee88 Solar Expert Posts: 154 ✭✭
    #8
    Re: Taxes, let the good times roll...
    mr.radon wrote: »
    That 30% tax rebate sure was nice!

    Indeed. I filed my taxes last Thursday and now eagerly await
    a big fat refund for our solar.
    mr.radon wrote: »
    Now I need to figure out how to save on taxes next year......

    It's called "Round 2" - add more solar panels! ;-) I did add a
    couple of panels to my original array, but alas I just missed getting
    them installed in December 2010. I'll catch that refund in my
    2011 taxes.

    John
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  • Peter_V
    Peter_V Solar Expert Posts: 226 ✭✭✭
    #9
    Re: Taxes, let the good times roll...
    jcgee88 wrote: »
    Indeed. I filed my taxes last Thursday and now eagerly await a big fat refund for our solar.

    John

    I went the other way. Since I knew my rebate would exceed my tax debt for several years, I just shut off my tax withholding at the beginning of last year and kept all the money instead of giving uncle sammy an interest free loan.
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  • BB.
    BB. Super Moderators, Administrators Posts: 33,613 admin
    #10
    Re: Taxes, let the good times roll...

    Just remember that if something happens to your solar plans and you don't get the tax rebates in the year you planned--Uncle Sam has a nasty disposition regarding people that under-withhold.

    The fines and penalties, along with back taxes, can make any savings that you may gain with over-withholding look pretty minor if things don't work out as planned.

    Hope for the best, plan for the worst.

    -Bill "not a tax guy" B.
    Near San Francisco California: 3.5kWatt Grid Tied Solar power system+small backup genset
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  • Blackcherry04
    Blackcherry04 Solar Expert Posts: 2,490 ✭✭✭
    #11
    Re: Taxes, let the good times roll...
    BB. wrote: »
    Just remember that if something happens to your solar plans and you don't get the tax rebates in the year you planned--Uncle Sam has a nasty disposition regarding people that under-withhold.

    The fines and penalties, along with back taxes, can make any savings that you may gain with over-withholding look pretty minor if things don't work out as planned.

    Hope for the best, plan for the worst.

    -Bill "not a tax guy" B.
    Bill, you sound like a guy that has been taken in by the retroactive tax. Thats the dirtiest trick they can pull.
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  • BB.
    BB. Super Moderators, Administrators Posts: 33,613 admin
    #12
    Re: Taxes, let the good times roll...

    No... I have been hit by the "sub line 41b: if you make more than $xxxxx, you cannot take $xxx worth of deduction..." clause. 1 day less than three year statue of limitations, they send me a bill that is 5-10x the amount of the missing tax.

    From then on, it has been Turbo Tax.

    -Bill
    Near San Francisco California: 3.5kWatt Grid Tied Solar power system+small backup genset
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  • Photowhit
    Photowhit Solar Expert Posts: 6,006 ✭✭✭✭✭
    #13
    Re: Taxes, let the good times roll...

    For what it's worth, it is a tax "Credit".

    I do mean I got all but $5 of my withholding back, literally paid $5 in taxes to the feds, $350 in Missery(Missouri)

    I don't make a lot of money, but don't have a lot of bills...

    Fork lift battery for next year, you can never tell when an administration might change, and I like the idea of a credit against my storage for the next 20 years...
    Home system 4000 watt (Evergreen) array standing, with 2 Midnite Classic Lites,  Midnite E-panel, Magnum MS4024, Prosine 1800(now backup) and Exeltech 1100(former backup...lol), 660 ah 24v Forklift battery(now 10 years old). Off grid for 20 years (if I include 8 months on a bicycle).
    - Assorted other systems, pieces and to many panels in the closet to not do more projects.
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  • solar_dave
    solar_dave Solar Expert Posts: 2,397 ✭✭✭✭
    #14
    Re: Taxes, let the good times roll...

    I agree on the nastyness from Uncle Sam on under withholding, did that one year and had to grovel my way out (claimed ignorance and late in the year taking of the income).

    Last year I got it all back, 2010 I added solar thermal and some more PV panels, with the carry over from 2010, the taxes were actually pretty painless this year as well.

    Still have quite a bit of credit on the utility account from last years end of year payout and suspect with the new AC unit (#2) and the added panels the bill will look real nice through the summer. You can tell when I originally commissioned the system. ;)
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  • sub3marathonman
    sub3marathonman Solar Expert Posts: 300 ✭✭✭
    #15
    Re: Taxes, let the good times roll...
    BB. wrote: »
    Just remember that if something happens to your solar plans and you don't get the tax rebates in the year you planned--Uncle Sam has a nasty disposition regarding people that under-withhold.

    The fines and penalties, along with back taxes, can make any savings that you may gain with over-withholding look pretty minor if things don't work out as planned.

    Hope for the best, plan for the worst.

    -Bill "not a tax guy" B.

    As a non-tax professional too, with the required consult your tax attorney, if it becomes clear during the fourth quarter that things won't work out, there would still be time to do something about it. I don't believe it is well known, but you can have a huge amount withheld from your paycheck, which the IRS calculates as paid throughout the year. So instead of getting penalized for under paying for the first three quarters, by doing the withholding option you can possibly cover the shortage. Now I have never used it, and you would have to check if it is still valid, but that is what I remember it to be.
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  • Cariboocoot
    Cariboocoot Banned Posts: 17,615 ✭✭✭
    #16
    Re: Taxes, let the good times roll...

    My wife is a tax professional - 25+ years experience. Unfortunately in the "wrong" country so I can't offer any specific US advice as she rarely has to do US returns.

    But some generalize tax info:

    People get deduction confused with tax credit a lot. The first reduces your taxable income, the second comes off the tax owed. I've even seen the Gov't. here make that mistake!

    Our tax agency is more forgiving than the IRS. Your has a problem with people whose W2's don't take enough off or take too much off. They get nasty about it if you're not within 'X' percent of what it should be, so don't have your payroll department withhold too much either.

    Ours just wants the money. With interest. And penalties. If they owe you money you can not file for years, no problem. They encourage people to file their own because they know they stand a 66% chance of coming out ahead:
    1). You get it right, no over or under taxation.
    2). You under pay, in which case they get the taxes plus.
    3). You over pay, in which case they quietly keep the extra money.

    Anyway, my American friends; don't cry too much. Up here 50% of our gross income goes to taxes one way or another. BC has no rebates or credits for grid-tie solar, whereas Ontario hands out ten times what GT power is worth with their Microfit program. If it ever made sense we'd all be struck ... er, senseless. :p
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  • mr.radon
    mr.radon Solar Expert Posts: 158 ✭✭✭✭✭
    #17
    Re: Taxes, let the good times roll...

    Interesting info I've gleaned off this post. thanks so much guys.

    Now two questions?
    1) Has anyone been audited when they claimed a PV tax credit?
    (had to show how much they paid for their PV system)

    2) What have people been doing to document the $$$ spent on their PV systems.


    My answers:
    1) My small business was audited in 1993, it was not pleasant. Afterward, I did get a some money because they found I actually should have gotten a refund. However, they said I needed better documentation of business expenses, they let that issue slide.

    2) I have all the bills, shipping orders, credit card statements, date received, date installed, date system put in service. Pictures of the installation, my thread here.
    Personal story - 4 years ago I got a nice letter from the IRS saying I owed over $10K. (2,300 back due taxes and a large penalty) It was claimed that I failed to file a tax return many years in the past. Luckily I was sitting in my office and asked the lady to name the year, while still on the phone I fax'ed her my photocopy of the return in question and the canceled check I sent the IRS. Long bit of silence on the other end of the phone, it was VERY obvious this was not the typical response from a taxpayer. She couldn't answer any of my questions, I was told I would get a call in about a week.
    Three days later I got a call from some administrator who apologized to me. My questions as to what happened went unanswered. A few weeks later I got a letter from the IRS noting the first letter was in error and I was in the free and clear.
    Since then I have been filing electronically just so I have a better record of the IRS actually receiving my return. No more placing the return in the mailbox at 11:58 for me and thank goodness for canceled checks!
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  • vtgoingsolar
    vtgoingsolar Registered Users Posts: 13 ✭
    #18
    Re: Taxes, let the good times roll...

    I am having an install in 2011 (soon).. expect about a $6000 tax credit.. I had never thought to adjust my withholding now so all year long, i can get this cash back.. but surely will give it some thought now.

    At the end of the year, I have had approx a 7-8K tax burden.. so I should be able to get the full $6k back for year 2011..

    For the 19 checks I have left.. I want to adjust my exemptions to get approx $300 less taken out of each check.

    Is it this simple ?
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  • BB.
    BB. Super Moderators, Administrators Posts: 33,613 admin
    #19
    Re: Taxes, let the good times roll...

    Yes, you can tell your employer how much money to take from your check.

    -Bill
    Near San Francisco California: 3.5kWatt Grid Tied Solar power system+small backup genset
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