# Earned Income Credit, beware of too many business expenses!



## RamzFanz

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.


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## Karen Stein

Thanks for the pointer!


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## lala2016

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.


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## Atom guy

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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## Older Chauffeur

RamzFanz said:


> 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.


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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## GILD

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.


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## Older Chauffeur

GILD said:


> 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.


Why does "changing your business mileage" to get the maximum refund sound like cheating on your taxes?


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## lala2016

Atom guy said:


> 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.


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!


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## RamzFanz

Older Chauffeur said:


> 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.


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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## Kaz

Exactly.EITC is a joke, should be done away with. It encourages low earners with kids to keep their earnings low so they can get back 5-6k. They dont pay much in, if anything. I know of a couple women that get this, its ridiculous.



Atom guy said:


> 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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## UberTaxPro

Kaz said:


> Exactly.EITC is a joke, should be done away with. It encourages low earners with kids to keep their earnings low so they can get back 5-6k. They dont pay much in, if anything. I know of a couple women that get this, its ridiculous.


It also encourages a lot of tax scams.


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## cho

UberTaxPro said:


> It also encourages a lot of tax scams.


What are the big scams of the EITC? (I thought I read relatives\friends trying to claim somebody else's kid as a dependent)


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## UberTaxPro

cho said:


> What are the big scams of the EITC? (I thought I read relatives\friends trying to claim somebody else's kid as a dependent)


The EITC is a *refundable* tax credit. You could have 0 tax liability, pay o in income tax for the year and still get money back from the IRS if you qualify for the EITC. The fact that you can create income without ever paying income tax is just to inviting for some unscrupulous tax preparers and tax payers.


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## DONRYAN24

HOLD UP....

If we are going to talk about the sleaze factor or encouraging bad behavior....

it is TAX FRAUD not to enter your business expenses. Failing to do so is mis-stating your actual income/profit. Your EIC goes down when you enter those expenses because you are getting a 'freebie' in essence for being a low wage earner.

The issue here is not HOW to fill out the tax documents to maintain your EIC....it is that you MUST enter those business expenses to determine if you LEGITIMATELY qualify for the EIC.

Don't make the mistake of confusing a reduction in EIC with a mistake. Programs such as TurboTax are very accurate. It is not an error that your Refund is going away when you enter those expenses...and failure to do so is nothing short that fraud in the IRS' view.


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## Anong

I don't think they give an actual refund for having kids anymore. They simply give a credit to what you paid in taxes already. You cannot get a bigger refund check if you only paid 150$ in taxes. For simplicity sake we will assume 25$ went to social security and another 25$ went to Medicaid (Medicare? Idk) . That means you only paid $100 in federal tax. Your kids will only allow you to get that 100$ back. Nothing more/Nothing less.

Why? Remember what I said earlier? You only paid 100$ in federal taxes so the kids are giving you a huge credit of 4000$ on your measly 100$. Basically the government is telling you to pay more in taxes but you won't because you have a low income in the first place lol.

Note, I'm not lol at you, I'm lol at the low income people who try to game the system but fail to fully understanding that your W-2 and that box that shows what you paid in federal taxes is your maximum refund. This is why it's so easy to catch tax cheats. They want more money back but they don't have paperwork showing they had 6000$ in federal taxes withheld by the government and even if they had paperwork, you'd still have to show that the 6000$ is in the federal government a hands ALREADY.

I hope I made this clear.

Oh, another note. You can lie about your business expenses but that's only hurting yourself. Once again, you must have proof to tell them the lie. Let's say you want to say you had 10k business expense. 
1st. What is the expense? Let's say it's a car you paid for in cash.
2nd. Where did you get the money?? And Bam, that's how you tell on yourself. You will either have to prove that a long lost relative gifted it to you but if you did that then that's just a gift and those are exempt from being taxed in the first place in most cases lmao.

See what I mean when I say you end up hurting yourself? 

Oh yeah, there is a reason why they call it an earned income credit. It's a credit that you take off of your taxes that you OWE already. If you don't have anything owed to the IRS ( which in most people's minds = a fat check) then you are out of luck because the credit is simply a credit towards what you owe but as we stated earlier, if you are driving for Uber you shouldn't have any taxes to worry about in the first place. Why? Because you are a independent contractor and Uber didn't take out ANY TAXES from you in the first place.

I'm slightly tired and some of this may not make sense but I'll explain more in detail if some parts you don't understand.


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## Lee239

RamzFanz said:


> 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.


Do you need to pay the Uber taxes quarterly to get the earned income credit or is this only if Uber is a side hustle?


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## Anong

Lee239 said:


> Do you need to pay the Uber taxes quarterly to get the earned income credit or is this only if Uber is a side hustle?


You NEED to pay the IRS money to get back money. If you didn't pay any money, you can't get back anything. If you do your taxes right, no driver should be having to pay quarterly unless they are on schedule to owe a stack ( I think it was) in taxes to the IRS and if they are in schedule to pay quarterly then they didn't file correctly.

It's like this. If you paid them 50$ in taxes. The max you can get is 50$ in taxes back. But why do that when if you do your taxes correctly you shouldn't be paying that 50$ from the get go.

Doesn't matter if Uber was a side hustle or a full time hustle. You would need to pay the IRS on the front end to get something on the back end but I say again, why pay on the front end in the first place when you shouldn't be paying anything at all..


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## Older Chauffeur

Anong said:


> You NEED to pay the IRS money to get back money. If you didn't pay any money, you can't get back anything. If you do your taxes right, no driver should be having to pay quarterly unless they are on schedule to owe a stack ( I think it was) in taxes to the IRS and if they are in schedule to pay quarterly then they didn't file correctly.
> 
> It's like this. If you paid them 50$ in taxes. The max you can get is 50$ in taxes back. But why do that when if you do your taxes correctly you shouldn't be paying that 50$ from the get go.
> 
> Doesn't matter if Uber was a side hustle or a full time hustle. You would need to pay the IRS on the front end to get something on the back end but I say again, why pay on the front end in the first place when you shouldn't be paying anything at all..


I think you are mistaken. The EIC does indeed apply if you meet the requirements, whether or not you have children. You can get the credit in the form of a refund if it exceeds your witholding, or even if you had no witholding. You must have earned income and have total income below the limit for your filing status.

https://www.irs.gov/publications/p596/ar01.html
https://www.taxact.com/tax-information/about-your-taxes/earned-income-credit

Disclosure: I'm not a tax professional.


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## Older Chauffeur

Lee239 said:


> Do you need to pay the Uber taxes quarterly to get the earned income credit or is this only if Uber is a side hustle?


Whether or not you pay estimated taxes quarterly isn't related to the EIC. There are some rules about paying in advance but basically if you expect to owe more than $1000 when you file, you should be paying quarterly. You might have to pay penalties if you haven't paid in at least 90% of what you owe, or an amount equal to 100% of your tax liability from the previous year. If it is a side gig and you have W2 witholding on a regular job, you should be ok.


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## UberTaxPro

The EIC is a *REFUNDABLE * credit and can reduce your tax liability below zero and allow you to receive a tax refund.

Other credits like the Child and Dependent Care Expenses Credit are *NON-REFUNDABLE *and cannot reduce your tax liability below zero.


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## RamzFanz

Lee239 said:


> Do you need to pay the Uber taxes quarterly to get the earned income credit or is this only if Uber is a side hustle?


You only pay Quarterly if you owed more than $1,000 the previous year. This has no impact on the EIC.


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## Run2w8s

If you under report your UBER expenses, you may trigger Self-Employment (SE) Taxes for Medicare and Social Security. These are called FICA for normal employees who receive W-2s. I believe NET profit above $400 per year requires payment of 15.3% SE tax. This is separate from Income Tax. This 15.3 % is higher than W2 employees pay for FICA because you pay both employee and employer share as an independent contractor. I suspect the EIC might end up less than the SE taxes owed. Perhaps a NET income of $399 would generate a tiny EIC and no SE tax?

I am in no way a tax professional. But this is what my research seemed to show.


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## Stevie The magic Unicorn

If you need more income for your EIC you can add some cash business revenue...

It's not hard LOL.


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## RamzFanz

Run2w8s said:


> If you under report your UBER expenses, you may trigger Self-Employment (SE) Taxes for Medicare and Social Security. These are called FICA for normal employees who receive W-2s. I believe NET profit above $400 per year requires payment of 15.3% SE tax. This is separate from Income Tax. This 15.3 % is higher than W2 employees pay for FICA because you pay both employee and employer share as an independent contractor. I suspect the EIC might end up less than the SE taxes owed. Perhaps a NET income of $399 would generate a tiny EIC and no SE tax?
> 
> I am in no way a tax professional. But this is what my research seemed to show.


This looks right in many respects, however, I absolutely had my return go down significantly (Over $500) when filing a year ago as I added expenses.

The "expert" I chatted with through TurboTax explained I was lowering my EIC credits by lowering my income with expenses.

Something is afoot here. There must be variables not included in your reply?


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## Stevie The magic Unicorn

RamzFanz said:


> This looks right in many respects, however, I absolutely had my return go down significantly (Over $500) when filing a year ago as I added expenses.
> 
> The "expert" I chatted with through TurboTax explained I was lowering my EIC credits by lowering my income with expenses.
> 
> Something is afoot here. There must be variables not included in your reply?


Don't remove expenses, add cash revenue.

It's 1000 times harder to disprove.


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## RamzFanz

Stevie The magic Unicorn said:


> Don't remove expenses, add cash revenue.
> 
> It's 1000 times harder to disprove.


The best advice is always in the comments.

Line item: Cash tips


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## Stevie The magic Unicorn

RamzFanz said:


> The best advice is always in the comments.
> 
> Line item: Cash tips


Yup...

Let's see the IRS disprove a few grand in cash tips LOL..


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## GreatGooglyMoogly

Anong said:


> You NEED to pay the IRS money to get back money. If you didn't pay any money, you can't get back anything.


This is straight up not true.

There are several refundable tax credits. EITC is the most common and best known. Depending on situation, I believe the max refundable amount is about $6K and is not dependent on the amount of taxes paid.

In fact, for someone to qualify for that amount it is almost certain that they had $0 in tax liability to begin with.

Another common refundable credit is the solar energy credit which is paid for investment in home solar equipment.


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## UberTaxPro

GreatGooglyMoogly said:


> This is straight up not true.
> 
> There are several refundable tax credits. EITC is the most common and best known. Depending on situation, I believe the max refundable amount is about $6K and is not dependent on the amount of taxes paid.
> 
> In fact, for someone to qualify for that amount it is almost certain that they had $0 in tax liability to begin with.
> 
> Another common refundable credit is the solar energy credit which is paid for investment in home solar equipment.


The "solar energy credit" (ITC) is not a refundable credit.


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