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Earned Income Credit, beware of too many business expenses!

Discussion in 'Taxes' started by RamzFanz, Jan 11, 2017.

  1. RamzFanz

    RamzFanz Well-Known Member

    Location:
    Saint Louis
    If you have a lower taxable income, especially if you have kids, you may get an Earned Income Credit (EIC).

    In order to get this, you must have income. If your deductions are too high, your refund can actually go down. If you have significant W2 income, then this shouldn't matter.

    To test, enter your W2 information first, then do your schedule C. Your refund or taxes due should improve when you add expenses like mileage and fees. If it doesn't, if they worsen, your deductions are too high.

    I was adding my business info first and each expense I added was lowering my refund. A tax expert explained it to me. I'm not sure if I explained it as well as he did.
     
  2. Karen Stein

    Karen Stein Well-Known Member

    Location:
    St. Louis
    Thanks for the pointer!
     
  3. lala2016

    lala2016 Member

    Location:
    Chicago
    This is what I was looking for. I noticed that too while trying to put it all in. You are very right.!! For self-employment, the higher the deductions = lesser income = lesser EIC you get back because EIC depends on the income and # of dependent.
     
    Last edited: Feb 11, 2017
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  4. Atom guy

    Atom guy Well-Known Member

    Location:
    CT
    So what you're saying is is that the EIC is designed to encourage you to earn less and have more kids. Our government at work.
     
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  5. Older Chauffeur

    Older Chauffeur Well-Known Member

    Location:
    Simi Valley Ca
    Be careful with this stuff. The IRS requires paid preparers of tax returns to apply due diligence in these situations to be sure their clients are complying with the law about accurate reporting of income and expenses. It might raise a red flag for a self prepared return.
    From the IRS:
    Are taxpayers required by law to claim all expenses pertaining to their business?
    Yes. A self-employed individual is required to report all income and deduct all expenses. Revenue Ruling 56-407, 1956-2 C.B. 564, deals with the issue of taxpayers not taking all allowable deductions in computing net earnings from self-employment for self-employment tax purposes. Rev. Rul. 56-407 held that under §1402(a), every taxpayer (with the exception of certain farm operators) must claim all allowable deductions in computing net earnings from self-employment for self-employment tax purposes.
     
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  6. GILD

    GILD Well-Known Member

    Location:
    Indiana
    Your deductions should equal what ever you need to get max refund, including changing your business mileage to give you that.
    I run at around 60%(filed) business on mileage. Keep huge records of daily driving, modify mileage as needed to get exact mileage needed.
    by adding more leisure mileage per day. dont forget Uber Fee they take 25% is in your 1040-k, so if they say you made 20k, you can deduct 5k (25%)under commission and fees or other expenses on schedule c. you may or may want to take that 5k(25%) deduction. Any way shoot for 90% mileage usage all year then modify your leisure mileage as needed to have proper income for year.
     
    Last edited: Feb 14, 2017
  7. Older Chauffeur

    Older Chauffeur Well-Known Member

    Location:
    Simi Valley Ca
    Why does "changing your business mileage" to get the maximum refund sound like cheating on your taxes?:eek::rolleyes:
     
  8. lala2016

    lala2016 Member

    Location:
    Chicago
    There is a cut off point of how much EIC one can get either [<5000 or >50000 income] or [<1 or >4 kids]. People without kids get EIC too. So, I believe people will rather have more income to care for their kids. For younger kids, EIC can not even cover daycare for 2months, a good daycare is very expensive and for school age kids we know how expensive that is too. Anyway!
     
  9. RamzFanz

    RamzFanz Well-Known Member

    Location:
    Saint Louis
    It's a fair warning. That rule is a set up to fail. Probably almost none of us captures every possible deduction.
     

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