Avoid Deductions

? how does Mortgage Interest reduce refund? If your referring to home office deduction form 8829, reducing income thus reducing refund. Depending on the business use, you would be safe not taking a home office deduction at all, since many home businesses do not take home office deduction due to various conditions, and difficulity defining such. For years a lot of accountants and taxpayers don't take home office deductions for fear of audit. Refer to IRS pub on business expenses, for defining home office and its deductions, good chance it may not qualify anyway. Good Luck, If its for another reason please explain, maybe I try a different answer.

You'll need to elaborate on that. I don't know how omitting a tax deduction can lower your refund. However, a taxpayer does have the option of claiming the standard deduction instead of itemizing even if it's to his detriment to do so, but you're saying it would be to his benefit to do so. I don't know how that can be.

It actually can happen by omitting expenses on a Schedule C return to boost the EIC, but a deduction and an expense are not technically the same thing. Maybe your client has a Schedule C return with a home-office and the additional Form 8829 expense for mortgage interest is actually lowering the EIC. If so, the client could forego the home-office deduction altogether since (1) most home-offices really don't meet the strict tests anyway, and (2) it's easy to disqualify a home-office by using the room or area for personal purposes during the year. But in this case, you would have to eliminate all home-office expenses, not just the mortgage interest. I'm kind of flailing here without more information, so I'll stop.

You'll have to explain further for me to offer an opinion. Maybe someone else will know what you're driving at. I'd rather not guess on this one. More information would help.

Wino, you and I were thinking along exactly the same lines and typing at the same time. I'd be interested in Fonfrele's further explanation of this phenomenon. I hope we get it.

If the question is, can I not deduct interest on my rental or can I not deduct supplies I purchased for my business so I can get a larger EIC the answer is no. You have claim all income and deductions otherwise it EIC Fraud.

Dusty

I guess we'll have to wait and see if there's a follow up on the question, to be for sure. But if it is as we assumed, I think as long as your not picking and choosing expenses on the 8829, and not taking a home office deduction at all, as Hap said, he would be OK. I do not believe the IRS would "require" or force any business to take a home office deduction, unless maybe there was actual commercial endeavor going on, like a retail store or something, unlike just some plumber with a desk in a bedroom. Can't wait on this one, to see if it's for some senerio.

I was meaning to say "some different senerio". Guess I need some more Coffee this morning.

Wino and Happy Tax are correct is the analysis of what you are asking and their questions

I believe Dusty's answer is probably the one you are looking for. Overstating income or omitting or understating legitimate deductions in order to increase EIC is fraudulent. However, where different acceptable alternatives exist (such as depreciation methods), you are not obligated to choose the one that minimizes the EIC.

I don't have time to do the research, but I believe that there is a Tax Court Case holding that the home office deduction, even where permitted, is optional. The other guys are correct, though, it's an all-or-nothing choice.

Wouldn't it be funny, after all that no self-employment at all. Just some dumb error. We may never know.

I wanted to clarify my question. I am preparing a Schedule C return for a client. She is qualify for EIC. When I include all the expenses (excluding home office expenses) in the return, the EIC also reduce since it reduces her income. A couple of you said that it is not legal to omit expenses in order to increase EIC. I don't know if there is any tax code that would require a tax payer to take certain the deduction but the intent might make it illegal. I will take the conservative approach and include all the expenses in the return. Thank you all for you help.

But we "gots too know", where does "the interest paid on your home" come in. Or was that just an example.

I used the mortgage interest as an example. It just wasn't a good axample.

Thanks for the reply. Have a great season. Also I notice by the time of your question you must stay up late or get up very early, either way, WOW.

I have a situation where "not" taking all possible itemized deductions "increases" the refund. It's a function of the interaction between the child tax credit and the recovery rebate credit.

In a nutshell, by reducing itemized deductions, tax is higher so child tax credit is higher and brings amount due to zero. The higher child tax credit creates a higher ceiling for the for the recovery rebate credit.

In real numbers, in my situation, by reducing itemized deductions by 1,157, tax goes up 115, but child tax credit goes up 115, and rec rebate credit goes up 95.

Question: Is it ok to forego the deduction to increase the refund in this situation?

My unresearched answer is, I don't think so. I believe the principle here applies all across the board, not just to EIC. You cannot arbitrarily reduce income if it has the effect of reducing taxes

I agree with Archie.  If there's an EIC involved then I'm thinking about due diligence and absolutely no.  As far as a schedule C goes, the business is suppose to conduct itself as a separate entity would, reporting all income and expense associated with the activity. Income is whatever it is and the tax laws apply as appropriate. Especially true for a single member LLC.