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Discussion:EIC and Subchapter S income
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Discussion Forum Index --> Basic Tax Questions --> EIC and Subchapter S income
Discussion Forum Index --> Tax Questions --> EIC and Subchapter S income
Vickytown (talk|edits) said:
| 20 February 2008
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| Client is active participant in subchapter s business. She was paid salary of $10,000 and has $4200 or ordinary income. I've read conflicting information for the treatment of the $4,200 in calculating the EIC. Since it is not subject to SE tax, do I have to claim it as passive income for the EIC, thus making her ineligible. Any help will be appreciated. (The Subchapter S is an LLC, having filed an election to be taxed as a Sub S.)
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Riley2 (talk|edits) said:
| 20 February 2008
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| No, the $4,200 in K-1 income should not have an effect on the EIC since it is not earned income and it is not disqualified income.
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Fsteincpa (talk|edits) said:
| 20 February 2008
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| How about this question. Previously discussion have been about excluding expenses from a Sch C to increase the EIC. some people thought it was wrong. I'm not one of them.
How about taking Section 179 expense thus increasing Sch C loss or lowering income which then maximizes the EIC?
Thoughts on this?
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Taxwizard (talk|edits) said:
| 20 February 2008
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| This is dangerous. There is a potential $10,000 fine for failure to properly reflect taxable income. This fine has been imposed on taxpayers who omit deductions from their returns (for whatever reason).
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EZTAX (talk|edits) said:
| 20 February 2008
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| I can't see a problem with taking a legitimate 179 deduction to increase an EIC.
Taxwizzard - can you provide a case site or other backup for a fine for not taking deductions? We have debated this before but only tossed "gut feelings" back and forth. Thanks.
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Scottycoyote (talk|edits) said:
| 20 February 2008
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| i dont see a problem with manipulating section 179 to increase eic, but i dont think you can selectively leave off expenses incurred having to do with a trade or business expressly to increase eic. There is bound to be a rev proc or something that addresses this but i dont think ive run across it. Im sure when writing the original code since there was no eic they probably never thought it would be a problem with people leaving off expenses. But when you look at some of the language, the whole idea is to accurately reflect your income and expense......i dont think you can selectively leave off expenses any more than you can selectively leave off income.
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Scottycoyote (talk|edits) said:
| 20 February 2008
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| sorry i dont know how to edit my posts yet, but isnt the k1 s-corp income going to be considered investment income and if its over the limit ( i think its 2400) then no eic.
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Vickytown (talk|edits) said:
| 20 February 2008
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| That was my original question - not sure about all the Schedule C stuff, but my question involved Sub s ordinary income, whether it had to be treated as investment/passive for EIC since it was not subject to SE tax. Riley 2 said it was not disqualified income. Just wondering if there are any other opinions. Thanks.
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CATAXES (talk|edits) said:
| 20 February 2008
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| If $2400 K-1 not passive income EIC allowed.
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CATAXES (talk|edits) said:
| 20 February 2008
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| Make that $4200 K-1. Dyslexic accountant.
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Riley2 (talk|edits) said:
| 21 February 2008
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| The taxpayer does not have the option of not deducting all of his business expenses. Internal Revenue Code ยง 161. Trade or business expenses are allowed as a deduction, meaning they are deducted in arriving at taxable income.
Also, understating deductions in order to increase the EITC can subject the taxpayer to the 6676 penalty.
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EZTAX (talk|edits) said:
| 21 February 2008
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| Thanks for the confirmation and cites Riley2. As always, greatly appreciated!
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