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Discussion Starter · #1 ·
OK, I don't earn enough to get the full $7500 tax credit. But I do have IRA money I can move to a Roth IRA, and generate more taxable income that way. So Uncle Same could pay for me to have much more in my Roth retirement funds in my old age.

Does anyone have any specific tips or things to think about when making this kind of a move?

I do have an investment advisor, and he can advise me on some things but probably not this in particular.

I suppose this will be as much the art of guessing as anything. I would much rather end up owing the tax man at the end of this year, than not owe enough tax to get the whole credit.
 

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OK, I don't earn enough to get the full $7500 tax credit. But I do have IRA money I can move to a Roth IRA, and generate more taxable income that way. So Uncle Same could pay for me to have much more in my Roth retirement funds in my old age.

Does anyone have any specific tips or things to think about when making this kind of a move?

I do have an investment advisor, and he can advise me on some things but probably not this in particular.

I suppose this will be as much the art of guessing as anything. I would much rather end up owing the tax man at the end of this year, than not owe enough tax to get the whole credit.
You can assume you have the same tax liability as previous year and then add the IRA to Roth conversion (it's added towards/like regular income) that will get you to the $7500 liability. It's easier to maximize/calculate since child tax credits are/is fully refundable now
 

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Discussion Starter · #3 ·
Great. Thanks for confirming it's that simple.
 

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Great. Thanks for confirming it's that simple.
It basically is, but obviously I'm not a tax professional. I added a bit of padding to make sure I met the $7500 liability but I'd look out for tax bracket changes, other tax credits you didn't think of or are dropped, etc as you inflate your income (especially since the Roth IRA conversion easy undo button has been removed from the tax tool chest).
I actually just added my 'hypothetical/calculated/guessed' IRA Roth conversion to my prior year (freetaxusa, turbotax, etc.) to see how it potentially affected my tax liability to help maximize the tax credit.
 

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Discussion Starter · #5 ·
It basically is, but obviously I'm not a tax professional. I added a bit of padding to make sure I met the $7500 liability but I'd look out for tax bracket changes, other tax credits you didn't think of or are dropped, etc as you inflate your income (especially since the Roth IRA conversion easy undo button has been removed from the tax tool chest).
I actually just added my 'hypothetical/calculated/guessed' IRA Roth conversion to my prior year (freetaxusa, turbotax, etc.) to see how it potentially affected my tax liability to help maximize the tax credit.
Yes, I had thought of those pieces to the puzzle. Like I said, I'd be happy to owe Uncle Sam some next year as long as it means I got the full $7500 credit.

I had thought about firing up TurboTax on last year's return to play with the numbers. Looks like a great idea.
 

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Can y'all help me understand this a bit more? Last year with 2 kids under 4 my tax burden was in the $4500 range. How will things change this year? Plus I'm having a third kiddo in September.

Am I correct in thinking I should try to increase my tax burden this year too maximize my use of the credit? Any strategies besides the IRA to Roth method? Sell stock?
 

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Discussion Starter · #7 ·
Have more income.

Assume this year's return looks like last year's. But this year you are eligible for UP TO $7500 tax credit. But you didn't earn enough to have a $7500 tax burden. Therefore, you would get only a $4500 credit.

If your tax burden is under $7500, you will get just enough credit to takes your tax burden to zero. If your tax burden is more than $7500, you will get a $7500 tax credit.

Selling investments, depending on the situation, might do it for you. Might not. But what are you going to do with the proceeds from selling those investments? Put them right back in? You might as well not do anything.

Moving money from a pre-tax IRA to a post-tax Roth IRA will cause that money to be taxable, AND puts that money into a tax sheltlered investment--which is a great thing. The big question is, how much do you have to move to raise your tax burden to $7500 (or slightly above)?

Remember, tax brackets aren't linear. You might have to move enough that you're in a higher tax bracket, which screws up the calculation.

Or, you could just go out and make more money. Move jobs, get higher pay.
 

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IRA to Roth conversion sounds like a great idea to boost taxable income.
 

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Can y'all help me understand this a bit more? Last year with 2 kids under 4 my tax burden was in the $4500 range. How will things change this year? Plus I'm having a third kiddo in September.
This is such a hard question to answer. Since the new child tax credit is fully refundable, I would try to get a minimum income of $66k if single and $91k if married to get a tax liability of $7500. (These numbers are from a tax calculator and they may or may not be correct). If you have other credits, those would be applied first, so your income would need to be higher to get a tax liability of $7500 after all the other credits.

Again, I'm not a tax pro and don't know the exact numbers you need.
 
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This is such a hard question to answer. Since the new child tax credit is fully refundable, I would try to get a minimum income of $66k if single and $91k if married to get a tax liability of $7500. (These numbers are from a tax calculator and they may or may not be correct). If you have other credits, those would be applied first, so your income would need to be higher to get a tax liability of $7500 after all the other credits.

Again, I'm not a tax pro and don't know the exact numbers you need.
So by the child tax credit being fully refundable, does that mean it does not count toward my tax liability FIRST, as I believe it was described as being the case in previous years? And by fully refundable are you suggesting that I will receive all of what I am "entitled" to via my children and then the EV credit will apply to my full tax liability? I am fortunate that our household income is above the estimated income levels you provided. Given that in previous years after the child credit was applied my remaining liability was $4500 or so, I think I may end up getting to use the whole possible EV credit if I now separately receive the entire child credit.
 

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So by the child tax credit being fully refundable, does that mean it does not count toward my tax liability FIRST, as I believe it was described as being the case in previous years? And by fully refundable are you suggesting that I will receive all of what I am "entitled" to via my children and then the EV credit will apply to my full tax liability?
Yes and yes.
 

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PHEV credit will be applied before the child tax credit?

I used to file my own taxes via paper. It is so complicated now.
 

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PHEV credit will be applied before the child tax credit?

I used to file my own taxes via paper. It is so complicated now.
Child tax credit is fully refundable now, so yes.
I hear you, it's almost impossible if you earn anything other than w2 wages to file taxes manually via paper.
freetaxusa.com offers free federal online file (and cheap $15 state online filing) or Credit karma started offering free federal/state online filing.
 

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Selling investments, depending on the situation, might do it for you. Might not. But what are you going to do with the proceeds from selling those investments? Put them right back in? You might as well not do anything.
Not true, it's a form of tax gain optimization. If you realize the cap gains now, then buy back the same investments, get the credit, and use that to also buy the same investments, you'll end up with the same number of shares. But your taxable gain is now less.

There are "wash sale" rules about harvesting losses, ie selling investments at a loss to offset other gains, and then rebuying those same investments. I don't think those same rules apply to harvesting gains, but I'm not a tax professional.
 

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I retired early so I have considered (as I have done in past years) doing more Traditional to Roth conversion money than usual. The issue I might run into is if I convert too much I could mess up my Affordable Care Act eligibility.
 

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OK, I don't earn enough to get the full $7500 tax credit. But I do have IRA money I can move to a Roth IRA, and generate more taxable income that way. So Uncle Same could pay for me to have much more in my Roth retirement funds in my old age.

Does anyone have any specific tips or things to think about when making this kind of a move?

I do have an investment advisor, and he can advise me on some things but probably not this in particular.

I suppose this will be as much the art of guessing as anything. I would much rather end up owing the tax man at the end of this year, than not owe enough tax to get the whole credit.
Looks like good planning. Your financial advisor should know these things but so many of them know nothing about taxes and non investment planning things
 

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I retired early so I have considered (as I have done in past years) doing more Traditional to Roth conversion money than usual. The issue I might run into is if I convert too much I could mess up my Affordable Care Act eligibility.
That is definitely true. You could lose far more through increased ACA junk premiums than you save with the credit.
 

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Try to use this:

Don't put down "Plug-in vehicle tax credit", though. You need to leave it at 0 in order to see your actual tax liability, since if your liability is less than $7500, then it will show it at net 0 regardless if it's $1 before the PHEV tax rebate, or $7499.

Also, I guess, the child tax credit comes first, as wise users already pointed out. I didn't know this.
 

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Discussion Starter · #19 ·
Good catch.

Also, I use TurboTax; it has a cool "What-If" form for things like this. I opened my 2020 return, chose Forms, and chose Open Form and in the search box typed what-if. The form lets you duplicate last year's numbers into a second column that you can use to fiddle with the numbers. It can even use what it knows of this year's laws to help. I imagine between the IRS estimator and Turbotax, I should find a solid amount of IRA monies to move over.

For example, so far the what-if tool is helping me find a line above which I get into a different tax bracket and my tax liability goes up tremendously.
 
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