any tax experts/accountants in the building?

[Kali]

I have a question. Do you HAVE to take a business loss, if you had one, or can you just claim a zero profit?

(this affects someone's totals for the EIC)

Thanks in advance.

[gateley]

1. Recommend

to keep this up there for you.

I've found the BEST advice and input - cuts right to the chase - from fellow DUers, so good luck getting the info you want!

[Kali]

5. that is for sure! DU is the best

I HIGHLY rec. the computer forum as well. baking and cooking too. (I'm sure all of them!)

[shain from kane]

2. "true, correct, and accurately list all amounts and sources of income" --- Basically, for every

set of assumptions, there is only one answer.


Read the paragraph where you sign, under penalties of perjury.

[Kali]

6. Yeah, that old honesty is best is good advice.

I asked because in some calculations with IRS a zero is a zero and negatives aren't used (calculating tax owed or some penalties, for example)

[Dollface]

3. All allowable expenses must be deducted in computing se income.

Net earnings from self-employment is defined in IRC section 1402(a) as the gross income for the business "less the deductions allowed by this subtitle which are attributable to such trade or business."
IRS looks closely at taxpayers who claim the EIC based on net earnings from self-employment with little or no reported expenses and will make appropriate adjustments or disregard the se income altogether for purposes of computing EIC. There is a 10 year disallowance of EIC in cases of fraud.


from Tax MAterials, Inc., 2007 Tax Book - I hope they don't mind.

Are you sure it isn't a hobby? Those loses are limited to zero.

[Kali]

9. just to nit-pick a little

the quote "less the deductions allowed by this subtitle..."
Not having the words "all deductions" is where it sort of gets grey. And I assume if you don't take every available deduction when it results in a favor toward paying more taxes nobody cares.

The point below about carrying the loss over was something I hadn't thought about either. Not a hobby, - worse. Farm. And there is wage income from the same category. complicated!

[Jeff In Milwaukee]

11. Not taking those deductions....

Results in higher Federal Taxes, Self-Employment Taxes, and State Taxes. In most years, your tax avoidance from taking these deductions will more than outweigh your EIC.

[Kali]

14. thanks - we have a complicated situation (at least to me!)

Husband has a construction business - that makes (some) money, I am employed by ranch/farm - hence wages, and then we have livestock that until this year has always made money (not a lot but it helps).

This year we didn't sell anything to speak of but bought a bunch of feed, hence the "loss."

As mentioned elsewhere, I hadn't thought of being able to carry it over for next year, plus it ended up not making any difference when recalculated so I will just leave it and may be able to benefit from it next year!

[racaulk]

4. I wouldn't recommend it.

I'm a tax accountant, but individual income taxes are not my strength. But in general, net operating losses can be carried forward to offset income in future years. If you claim no loss in the current year, you could be screwing yourself out of a tax benefit in the future...and would a few extra dollars with the EIC in the current year be worth that?

Also, the IRS carefully scrutinizes any EIC claimed. This is one area where they do not screw around. The instructions for the 1040 clearly state penalties for knowingly making false statements in order to claim an EIC, including not being able to claim the EIC for up to 10 years.

As the poster upthread stated, you should be making complete and accurate statements on tax returns filed, which is the statement you attest to when you sign the return. You should not arbitrarily pick and choose what will make your tax situation most advantageous. I think you're walking that thin line between tax avoidance and tax evasion with this, and when there is doubt in that regard, it's always best to make full disclosure and to be honest.

I hope this helps. Best of luck! :hi:

[Dollface]

8. Wow. There are two liberal tax accountants? It's a world gone mad.

[Jeff In Milwaukee]

12. Make that three...

I'll teach you the Secret Handshake some day!

[Dollface]

15. I'm in.

[racaulk]

20. That's what I thought too!

Conservatives do seem to be drawn to our profession, don't they?

:hi:

[Jeff In Milwaukee]

10. I agree...

Beside the whole "filing a fradulent tax return" thingie, depending on the individual's income and situation for the current tax year, it may make more sense to skip the EIC this year rather than lose the loss in a subsequent year.

NOTE: Filing a false EIC claim gets you thrown out of the system for TEN YEARS. Is it really worth the extra $100 - $200 to risk losing thousands in subsequent years?

DON'T DO IT!!!

[Kali]

16. I didn't I didn't!

I was just asking :scared: :hide:

[Kali]

13. Thanks

Didn't think about carrying over. Good point. (never had an actual paper loss before - ag is always a loss of money in real life - ha)

And just to set the record straight when I redid the thing with a zero instead of the loss, it made no difference in the end result. :crazy:

[Dollface]

17. One more thing. If you have a Net Operating Loss you must carry it back unless you elect to carry

it forward. Farming losses can carryback 5 years, other business losses 2 years. Whether or not you want to do that depends on the size of the loss. The form you want if you carryback is a 1045, available on the irs website. (It is a stinker though.) Do the loss computation on page 2 (or 3 I don't remember exactly) of the 1045 to verify the actual loss amount available. It is not necessarily the amount showing on your 1040.

[Kali]

18. When do you decide that?

If I carry it back for 5 years does that mean filing 5 amended returns? Seems like it was an expense that will be recouped next (this) year so that would be where I deal with it??? aaaa getting even more complicated now.

[racaulk]

19. No need to file amended returns.

If you feel you are owed a refund due to carrying back losses, just complete the Form 1045. The form is basically just a request for a refund. As Dollface stated, the form is a bit involved, but it's not as difficult as filing amended returns--and it's quicker this way. Also, you don't have to file the return with your 1040, you can send it in as a separate filing.

You can download the form and the related instructions at www.irs.gov under their "Forms and Publications" section.

[Dollface]

21. Thanks for clarifying RA. I had to go to a meeting.

[fed-up]

7. delete nt