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My total 2023 household income before tax or any deductions will be $321,000. If we both max out our 401(K) and HSA, can we bring our AGI below $300,000? I plan on buying a Tesla, and for me it makes sense to buy a Tesla only if we will get the $7500 tax credit.

We both are salaried employees and are Married Filing Jointly.

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  • Is $321K your projected AGI for 2023? Your projected total income for 2023? Your total income to date? Don’t forget about the standard deduction.
    – nobody
    Oct 12, 2023 at 1:01
  • 321 is my projected total income for the year 2023, without any tax or deductions.
    – imba22
    Oct 12, 2023 at 1:19

2 Answers 2

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Yes, Traditional 401(K) contributions and HSA contributions will reduce your AGI so amassing $21,000 or more between the two of these could get your AGI under $300,000 and let you qualify for the EV tax credit. But beware of plan-specific 401(K) contribution limits - it may not be possible to make $20,000 in 401(K) contributions in the next two months unless you're already pretty close. Some plans have arbitrary limits, like no more than 25% of each paycheck.

Other considerations:

  • Don't forget about dividends, interest, and capital gains when calculating your total income for the year.
  • You can use capital losses to lower your AGI. If you have any non-qualified (taxable) investing accounts and you have some investments that are currently down, you could sell them to lock in a capital loss (possibly immediately turning around and buying some other investment, but not the same thing to trigger a "wash sale"). This is limited to offsetting to $3000 of other income after offsetting any capital gains you may have.
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  • Thanks @nobody, I have one more question, as I understand the EV credit of $7500, is only useful if we owe money to IRS. If IRS owes us money then we will not get even $1 out of $7500. So currently both me and my wife have Married filling Jointly selected and the company is withholding money based on that. We do not have any other income source, in this case what is the best way to make sure we end up paying money to IRS in the tax bill. The EV credits will only come into play if we owe, ideally more than $7500 to IRS, right?
    – imba22
    Oct 12, 2023 at 1:49
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    The credit is with respect to your total tax (1040 Box 16) - not on your balance due at tax filing time. With a gross income of $321,000 your federal tax will be around $90,000 so even with some deductions you'll still have more than enough tax to allow the entire $7,500 EV tax credit.
    – nobody
    Oct 12, 2023 at 1:54
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401k contributions reduce modified AGI, the maximum contribution for 2023 is $22,500 so you could get below the 300k mark with 401k alone. HSA contributions also reduce modified AGI.

If you take delivery of the vehicle in 2023 you could also use 2022's modified AGI to qualify per IRS:Credits for New Clean Vehicles Purchased in 2023 or After:

To qualify, you must:

  • Buy it for your own use, not for resale
  • Use it primarily in the U.S.

In addition, your modified adjusted gross income (AGI) may not exceed:

  • $300,000 for married couples filing jointly
  • $225,000 for heads of households
  • $150,000 for all other filers

You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in 1 of the two years, you can claim the credit.

Note that it's modified AGI for the credit, check the IRS documentation to see if any modifications to your AGI apply: https://www.irs.gov/pub/irs-pdf/i8936.pdf

There are some headlines indicating the credit might be easier to qualify for in 2024, but nothing official yet that I've seen. Since it's nearing the end of the year it's worth looking to see if anything is different for your state between 2023 and 2024 regarding EV credits, for example Colorado is increasing there maximum potential EV credit.

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  • Hart CO you are awesome. My last year 1040 form column 1a had 319 in it. Do you know which column in 1040 denotes the AGI?
    – imba22
    Oct 12, 2023 at 1:37
  • AGI is 1040 Box 11.
    – nobody
    Oct 12, 2023 at 1:38
  • 11 on the 1040. "Subtract line 10 from line 9. This is your adjusted gross income" You're looking for modified AGI (often the same as AGI), can read more about modified AGI here: investopedia.com/terms/m/magi.asp
    – Hart CO
    Oct 12, 2023 at 1:41
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    There are many different MAGIs used in the tax code; the investopedia description is correct only for IRA(s). For the 'clean' (plugin) vehicle credit, see page 4 of irs.gov/pub/irs-pdf/i8936.pdf . Oct 15, 2023 at 1:29
  • @dave_thompson_085 Thanks for that, updated to avoid ambiguity.
    – Hart CO
    Oct 15, 2023 at 2:32

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