Discussion:Why is denied the EIC ?
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| 9 February 2007 | |
Good evening ladies and gentleman,
Would somebody direct me where to look in the code. Client had W2 income minus K1 partnership loss and the EIC is denied, it is denied because taxpayer had investment in that partnership? Thank you ! | |
| 9 February 2007 | |
| Has it occurred to you that reason it was denied has to do with AGI above limit? | |
| 9 February 2007 | |
| Actually that is what surprises me because after the loss, now is in the range for EIC | |
| 9 February 2007 | |
| A loss from a partnership would not cause a problem. Did the partnership have any investment income? Perhaps the W-2 wages were too high. | |
| 9 February 2007 | |
| Publication 596 has the info on what is disqualifying income. I had to refer to it today because I didn't believe the tax software. The client had a 4,000 capital gain, but gave them EIC. Turns out the gain originated from 4797 which is not disqualifying income. | |
| 9 February 2007 | |
| Indeed the W2 is above the limit or lets say is 56k minus the loss from K1 is -40K
Is that the reason ? Even counting the loss will not be able to take EIC? | |
| 9 February 2007 | |
| A joint filer with a W-2 form showing at least $39,783 in earned income is phased out of the EITC altogether unless the client has losses from self-employment that will bring his earned income down below that threshold. | |
| 9 February 2007 | |
Riley,
Will applied when the loss is from a K1 on a partnership? | |
| 9 February 2007 | |
| Check Pub mentioned above to see for yourself if K-1 is the disqualifying factor. | |
| 9 February 2007 | |
If client is over 65 that can disqualify the t/p.
Also does the t/p have an ITIN instead of a SSN? That would also disqualify t/p. | |
Death&Taxes (talk|edits) said: | 9 February 2007 |
| What is on Line 14a of the K-1, self-employment income | |
Death&Taxes (talk|edits) said: | 9 February 2007 |
| So he has no losses from self-employment, as Riley notes above. | |
| 10 February 2007 | |
| Dantes, if it doesn't make sense to you that Line 14 is blank, which you seem to be implying, you might want to talk to the preparer of the 1065 to understand why it was not treated as earnings from self employment. | |
Death&Taxes (talk|edits) said: | 10 February 2007 |
| Read Riley's note: it is not the Line 1 or 2 income on the K-1 that matters, it is the self-employment income, or loss in this case, which is zero, and leaves him with 39,783 of earned income, too high for the credit. | |
| 10 February 2007 | |
| I am the preparer of the 1065 and line 14 is blank because there is no guaranteed payments for the partner.
The real question is : In an ordinary loss from K1 partn.(-40,000) after impacts the W2 earnings (57000)and brings down the AGI to a range (17000 that should qualify for EIC) Why the EIC is denied ? | |
| 10 February 2007 | |
| As stated above, that ordinary loss only helps you on the EIC issue if it is considered earning from self emplyment.
It appears the p'ship is an LLC and you are treating the partners as limited partners, hence the earnings from the p'ship are not self employment income. Without addressing the accuracy of that position...it seems the future savings of self employment taxes would more than offset the loss of an EIC this year. Basically it's this...you can't have it both ways. Good luck. | |
| 10 February 2007 | |
| You said after the K-1 loss it was now in the range. EIC based on earned income and AGI. Either on will disqualify. If W-2 too high K-1 will not reduce it unless on line 14 | |
| February 10, 2007 | |
| Line 14A needs to have the 40K loss (self-employment income) or the EIC will not be computed. | |
| 10 February 2007 | |
| Now It makes more sense,
Thank you Glmpllc and everyone !. Nice Week end !!!!! | |
