Solar Homeowners and The Federal Tax Credit

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When most consumers set out to do research about solar panels, they will eventually come across the Residential Renewable Energy Tax Credit. This tax... The post Solar Homeowners and The Federal Tax Credit appeared first on Solar Feeds.

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  • vtmaps
    vtmaps Solar Expert Posts: 3,741 ✭✭✭✭
    #2
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    Re: Solar Homeowners and The Federal Tax Credit

    From this newsfeed:
    We hope that by reading this blog post, you will have a better understanding of how the federal tax incentive will work for you when you are ready to purchase a solar system.
    <snip>
    To guide our sample scenarios, we’ll imagine that Joe Solar paid a total of $25,000 for the installation of his solar electric system on his home’s rooftop. This amount qualifies him for a $7,500 solar tax credit.

    But then this poorly written article provides information that is very misleading, if not wrong:
    In Scenario A (where he would owe less) April arrives, he files his taxes and claims the 30% solar tax credit. It turns out he owes $10,000 in taxes, so the entire $7,500 is applied and he writes a check to Uncle Sam for the remaining $2,500 that he owes.

    For Scenario B (where he would owe nothing), we find out that Joe only owes $1,200 in taxes because his employer was deducting taxes from his paycheck through the year. His tax credit covers this $1,200 amount that he owes and then the remaining $6,300 tax credit will roll over to any succeeding taxable years through 2016.

    The problem with Scenario B is that we don't know what Joe's taxes were... does he owe $1,200 more than what was withheld by his employer? Or is his total tax liability $1,200? The amount, if any, that his employer withheld is entirely irrelevant.

    Suppose his taxes for the year are $5,000 and his employer withheld $3,800. If not for the solar tax credit he would owe $1,200. With the tax credit he will receive a refund of $3,800 and have $2,500 credit to carry over to another year.

    --vtMaps
    4 X 235watt Samsung, Midnite ePanel, Outback VFX3524 FM60 & mate, 4 Interstate L16, trimetric, Honda eu2000i
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  • NorthGuy
    NorthGuy Solar Expert Posts: 1,913 ✭✭
    #3
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    Re: Solar Homeowners and The Federal Tax Credit
    vtmaps wrote: »
    The problem with Scenario B is that we don't know what Joe's taxes were... does he owe $1,200 more than what was withheld by his employer? Or is his total tax liability $1,200? The amount, if any, that his employer withheld is entirely irrelevant.

    People don't take time to understand taxes. Employer usually withholds more, so people get a refund. Amaizingly, most people are happy about this because the government paid them. Nobody looks at this as the government forced them to lend money to the government at zero rate, which is what it really is.
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  • solar_dave
    solar_dave Solar Expert Posts: 2,397 ✭✭✭✭
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    Re: Solar Homeowners and The Federal Tax Credit
    NorthGuy wrote: »
    People don't take time to understand taxes. Employer usually withholds more, so people get a refund. Amaizingly, most people are happy about this because the government paid them. Nobody looks at this as the government forced them to lend money to the government at zero rate, which is what it really is.

    This is so true but be like me, an independent contractor, and under pay them. Then there is the penalty phase of the tax code to deal with. Slightly under total tax burden is certainly the way to go. I only comment on this because the 3rd quarter tax payment is due in a few weeks and I always dread the guestimate, sometimes I throw in the towel and just pay some extra.
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  • NorthGuy
    NorthGuy Solar Expert Posts: 1,913 ✭✭
    #5
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    Re: Solar Homeowners and The Federal Tax Credit
    solar_dave wrote: »
    This is so true but be like me, an independent contractor, and under pay them. Then there is the penalty phase of the tax code to deal with. Slightly under total tax burden is certainly the way to go. I only comment on this because the 3rd quarter tax payment is due in a few weeks and I always dread the guestimate, sometimes I throw in the towel and just pay some extra.

    When your income is stable then you can estimate well, but if it is varies a lot from year to year, you have to overpay after a good year, but can underpay after a bad year. This increases variation between years.
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  • solar_dave
    solar_dave Solar Expert Posts: 2,397 ✭✭✭✭
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    Re: Solar Homeowners and The Federal Tax Credit
    NorthGuy wrote: »
    When your income is stable then you can estimate well, but if it is varies a lot from year to year, you have to overpay after a good year, but can underpay after a bad year. This increases variation between years.

    Well it is kind of a moot point, this is the first year contracting again after about a 10 year hiatus, and next month I am going to try and just leave it all behind and retire. I tend to make early quarters a bit on the low side because one never really knows how the balance of the year will work out and you can always add to the later quarters if needed.
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