How to change W-4 to maximize solar tax credit

[sounders2019]

Hello, wise mustachians! I hope you can help--I've tried searching on the web to find some specific answers but all the calculators I've found seem geared towards adjusting your W-4 so that you owe nothing on your taxes.

Situation: My partner and I would like to have a solar panel system installed in September and want to (need to?) take advantage of the solar tax credit. My understanding is that we need to owe taxes next year in order to take advantage of this. Both my husband and I don't really understand W-4s at all, despite being in our 30s. We have always gotten money back on our tax return which I understand means we are probably witholding too much--we need to swing this pendulum!

My question is about the mechanics and specifics of adjustment.

Our numbers:

Husband's gross pay: 110k + 15k bonus (plus stock bonus as well)
My gross pay: $38k
We have one child, age 2.

Currently my husband claims 1 dependent on his W-4 and does not make any other adjustments.
I also claim 1 dependent on my W-4 and deduct an additional $274 per paycheck.

I assume the first step is to change that $274 to $0, but is there anything else we can do? Solar panels for our home will be about $30k so I'd like to owe at least $6,000 when we file our taxes next year.

Thank you for any advice!

[geekette]

I think you're mixing up the amount of your taxes with the amount you have withheld.  Non-refundable tax credits are applied to your taxes, and have no bearing on how much you have withheld.

Just looking at our 1040 from last year, our taxes are listed on line 18.  Non-refundable tax credits are figured on Schedule 3 and subtracted on line 19.  If your tax credits are more than your taxes, you lose the rest.  If your taxes are higher, you get the entire credit.
 

[Psychstache]

Whether or not you get a refund following filing your taxes has no impact on the credit. The only issue is that you need to have a tax liability >= the credit.

These numbers aren't precise but:

163k gross income
-13k FICA
-26k standard deduction
= 124k in taxable income

124k taxable income = 18,700ish taxes due for 2022 (assuming MFJ). Take out 2k for the CTC and you are down to 16.7K

so unless your tax break from the solar panels is approaching 16k (which would be an insanely large system for a personal residence) or there are other significant components to your tax situation that were not shared, then you will be able to take advantage of the full credit.

[sounders2019]

Thank you both so much! It looks like our taxes due in for 2021 were around 16,000 (and I was out part of the year on unpaid leave) so we should be good to go. Thank you again for taking the time to respond--this explains why all my Googling wasn't turning anything up! :)

[dandarc]

The solar tax credit can be rolled over for up to 5 years if you happen to wind up unable to use it this year in full.

[sounders2019]

The solar tax credit can be rolled over for up to 5 years if you happen to wind up unable to use it this year in full.

Thank you! That's really helpful to know as well.

[secondcor521]

The solar tax credit can be rolled over for up to 5 years if you happen to wind up unable to use it this year in full.

Provided it gets extended.  It will expire in 2024 unless Congress extends it.

https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics#:~:text=In%20December%202020%2C%20Congress%20passed,2024%20unless%20Congress%20renews%20it.

[braje]

Whether or not you get a refund following filing your taxes has no impact on the credit. The only issue is that you need to have a tax liability >= the credit.

These numbers aren't precise but:

163k gross income
-13k FICA
-26k standard deduction
= 124k in taxable income

FICA does not lower taxable income FYI

124k taxable income = 18,700ish taxes due for 2022 (assuming MFJ). Take out 2k for the CTC and you are down to 16.7K

so unless your tax break from the solar panels is approaching 16k (which would be an insanely large system for a personal residence) or there are other significant components to your tax situation that were not shared, then you will be able to take advantage of the full credit.

[Greystache]

Another possible option is a prepaid lease of your solar equipment. The company that installed my equipment offered a deal in which the company got the tax credit and deducted it from the cost of the lease. I paid the entire cost of the 20 year lease in one lump sum that was equal to the cost of purchase minus tax credit. At the end of 20 years, I take over ownership. I can also take ownership prior to 20 years for a small fee. The reason I went with the prepaid lease instead of a simple purchase is because I was retired and had structured my taxable income to be very low. Too low to take advantage of the tax credit in one year. At the time, the tax credit was expiring and I could not get a definite answer if it was going to be extended or if I could carry over multiple years. Also, it was just easier.

[Psychstache]

FICA does not lower taxable income FYI

My bad. I don't pay into SS so I didn't realize that was the case.