Discussion:Does one have to claim deductible expenses

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DR BRISKET (talk|edits) said:

3 April 2006
I'm currently preparing a day care provider's taxes. She is divorced with three young children, and operates a day care center from her home. She only took in around $20,000 for the entire year. If I claim every daycare deduction she has coming, she will get less than the maximum EIC allowed. Is there anything in the tax code that implies that one MUST claim deductible expenses if they were incurred?

HPTAX (talk|edits) said:

3 April 2006
I don't know. The code and regs are riddled with the term allow. For me, to allow implies choice.

Meadowglenatmonroe@frontiernet.net (talk|edits) said:

3 April 2006
Sunday, April 02, 2006

Hello, DR BRISKET.

Preparing individual income tax returns is not like building a puzzle, where you start with the outside frame and work yourself inside to find the missing pieces according to this outside frame. A basic tenet of preparing individual income tax returns is collecting all relevant information, whether it is income, or deductions, and comprehensively reporting this on the income tax forms that The Internal Revenue Service, and all of the states, provide, in a logical, honest and straightforward manner. Preparing individual income tax returns is not a game, it is the reporting of facts.

Thank you.

Dennis (talk|edits) said:

3 April 2006
I also vote for choice. Just because a deduction is allowable doesn't mean it has to be taken--especially if taking the deduction hurts the client.

Key Post - Riley2, April 3, 2006

Riley2 (talk|edits) said:

3 April 2006
Dr. Briskett, there are numerous statutory provisions that make this a very bad idea, including criminal and civil fines and penalties. The Internal Revenue Service has the authority to pursue criminal prosecution against any taxpayer who overstates his taxable income – for whatever reason.

In addition, this would probably be a violation of the Sec. 6695(g) due diligence requirements for EITC.

Dennis (talk|edits) said:

3 April 2006
In the case of a mother with three young children operating a day care center, the allocation issues alone can provide a wide range for net income. The concept that there is one correct answer for the net income for this business is ludicrous.
And while Riley is quite correct as to the letter of the law, in practice it would make acountants' services unavailable to taxpayers in a cash business.

JR1 (talk|edits) said:

3 April 2006
Take a look at your Due Diligence Worksheet for the EIC. Two questions should give you pause: Has the taxpayer reported all income? Has the taxpayer reported all deductions? You just cannot play with the deductions for EIC to get the answer you want. Or for that matter, for other purposes as well. I have clients come and say, well, don't deduct everything this year, I want to borrow for a new mortgage...so we're not committing tax fraud in that case, but bank fraud. Both federal felonies. I understand that we have some flexibility and leeway in how we report things at times...

HPTAX (talk|edits) said:

3 April 2006
I wouldn't want anyone to break the rules here. I know, as accountants, we rely on information provided to us by our clients. In this case (I have a soft heart and would put in the extra effort), I would review the clients records and make sure she had proper substantiation for her claims. Who knows, she may have forgotten to include some income or some expenses are not deductible. Extend the return, do it when you have more time.

RG (talk|edits) said:

5 April 2006
What would be the difference in the question if the decision was to Section 179 a new piece of equipment, or simply put on depr schedule? By NOT electing 179, your client gets a bigger EIC?

JR1 (talk|edits) said:

5 April 2006
That ain't even close to the same thing as choosing to not declare some expenses. That's merely an item that we have a choice in, like taking mileage or actual (in the first year) on a vehicle. Or even at what level to throw something on the depreciation schedule.

Sandysea (talk|edits) said:

5 April 2006
I agree. This is a "game" people play to defraud the government for the EIC. The EIC is for people who actually do not earn enough to support a family. I would take a guess that your client has done her homework and knows what she can and can't report to make it look "good" for the IRS. It would be funny now if next year she wants to write off expenses that she did not claim in first year of doing business. Red flags anyone?

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