Discussion:Electing to Itemize to get the rebate

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Discussion Forum Index --> Advanced Tax Questions --> Electing to Itemize to get the rebate


Discussion Forum Index --> Tax Questions --> Electing to Itemize to get the rebate

TPEvans (talk|edits) said:

9 March 2008
I am going to elect to itemize to raise the income on a return to the level necessary to get the rebate. The tax is zero using the standard deduction and zero when electing to itemize. The election is as specified at IRC 63(e)(1). I should insert that I have very few itemized deductions and that the standard deduction is quite a bit larger than the total of the itemized deductions. Hence the elction to itemize being seemed superior in terms of the bottom line. Any thoughts?

Sec. 63

Greg91020 (talk|edits) said:

9 March 2008
I thought the rebate was based on gross income, not taxable income.

CalifCPA (talk|edits) said:

9 March 2008
It sounds like you are trying to qualify your client for the $300/$600 rebate. For a married couple, they would need have gross income of at least $17,500 and a tax liability of at least $1. Alternatively, the taxpayer could qualify if they have at least $3,000 in qualifying income. If electing out of Sec. 63(e)(1) helps them qualify, I see no problem with this.

Kevinh5 (talk|edits) said:

9 March 2008
gosh, doesn't this sound like the EITC fraud? Does no one have any ethics anymore?

this is the 2nd CPA in 2 days to suggest doing something that I would think is completely unethical. What gives?

Szptax (talk|edits) said:

9 March 2008
facinating idea... if you don't get a 1099, is it income? TPE, it is what is it. There are times you can save a client tax $$ and times you can't. This isn't one of them.

Death&Taxes (talk|edits) said:

9 March 2008
Push, push, push that envelope.

I recall this stockbroker would fund Roth IRA's for his kids, whose reported income usually was short of the then $2,000 requirement. "Well, he did cut lawns." So the kid actually paid SE tax.

Szptax (talk|edits) said:

9 March 2008
Well, he had earned income. This is the requirement. I sincerely doubt that he mantained proper records & treated it as a business though. Probably, if he did he wouldn't have earned much at all. Fee-equipment-maintenance of equip-fuel etc = "-" (probably)

TPEvans (talk|edits) said:

9 March 2008
Kevinh5, perhaps you would like to elaborate on how this sounds like the EITC fraud. There is an election in the code to itemize. I make the election. The client, a low-income single mother of 2 kids gets a $900 rebate. No rules are broken. All rules are followed. In other words, not anything like the EITC fraud. But, that doesn't stop a candyass psuedo intellectual like you from attempting to feel better about your sorry ass by trying to climb onto an assumed morally higher level.

In answer to your question "What Gives?", which I suppose is your updated version of "whatever", soid advice is being rendered. It is not surprising you didn't recognize it. As far as accusing me of being unethical, lets meet up. I would like to hear this straight from you. I want to hear your punkass say it. This anonimity the net affords is just a bit too quaint isn't it.

By the way, I do appreciate the remaining responses. Thank you.

Kevinh5 (talk|edits) said:

9 March 2008
I am not so anonymous, I do post to this board more than once every year. I used to have a large tax practice about 20 minutes from you in Woodstock, Ga, and still have a home at the Marietta/Roswell line about 15 minutes from you, so yes, if you want to meet up for coffee some time we can.


Do some research on not claiming all the allowable deductions to raise EITC and you'll see that it IS unethical.


in my professional opinion, you are advocating doing the same thing.


if you want references, give Paul Dove, CPA a phone call in Alpharetta


your thinly veiled threats appear unethical, as does your name-calling


and TP, if you can't take the heat, stay out of the kitchen. Posting on any website opens your statements up to scrutiny from the outside world. You asked for opinions, we gave them. You just didn't like mine at all. That doesn't mean the others are any more correct or incorrect, it just means that you didn't like the words I used. If you can't take the heat, stay out of the kitchen.

Now that I have voiced my opinion, I will be more than willing to listen to the opinions of others on this subject.


I just verified via google. Neither Tim Evans, CPA nor Kevin Huston, EA is anonymous.

Szptax (talk|edits) said:

9 March 2008
If we follow the rules, and make legitimate choices which result in less tax being paid by the taxpayer then we are doing our jobs effectively. I think the issue here and the relationship to the EITC is that the rebate is going to some who otherwise would not have to pay taxes. Indeed they wouldn't otherwise even need to file (except to start the statute tolling or show basis in investments, but don't get me started). Thus they get something for nothing - a refundable rebate like the refundable credit. We all know manipulating the nos. for EITC is a no-no. Manipulating the figures so that they get more rebate certainly causes me to pause particularly given the similar character of the two. It goes against my basic preparation instincts and at least smells funny.

CalifCPA (talk|edits) said:

10 March 2008
There are laws in place to prevent a taxpayer from electing to forego trade or business deductions. For example, see Sec. 161 and Reg. 1.161-1. However, the itemized deduction election is just that - an election. If the taxpayer decides to use the standard deduction instead of itemized deductions, there is nothing in the law to prevent this.

Kevinh5 (talk|edits) said:

10 March 2008
good point, but in this case the taxpayer is 'electing' to itemize, because itemizing results in less of a deduction than taking the standard.

NYEA (talk|edits) said:

10 March 2008
To go back to the original post, I fail to see how this choice between standard or itemizing is relevant. What am I missing? Isn't the rebate based on "qualifying income" and tax liability?

IRS quote: "To determine your qualifying income, add together your wages, net self-employment income, nontaxable combat pay, Social Security benefits, certain Railroad Retirement benefits and certain veterans’ payments". This is a "gross" income rather than a "taxable" income factor.

If (as the original poster states) the tax liability is zero in EITHER case (S.D. or Item), the rebate is then determined by the $3,000 income floor. With no tax liability, the taxpayer gets $300 plus the rebate for the qualified children. Do I miss something - Am I wrong?

Kevin - let's ignore the rebate issue. How about this question. If a taxpayer falls into AMT when using the standard deduction, would you consider the election to itemize with a lower amount to reduce the AMT bite? While I think the election to itemize is a moot issue for the original post, what do you think about an election for this AMT issue?

CalifCPA (talk|edits) said:

10 March 2008
NYEA, good point, but a taxpayer with a zero tax liablity and less than $3,000 of qualifying income can still qualify for the $300 rebate if the tax liability before the earned income credit and the child tax credit is at least $1.

Kevinh5 (talk|edits) said:

10 March 2008
I'll have to admit, NYEA, that I have never in 20 years and tens of thousands of tax returns, seen the AMT when using a standard deduction for a client. I know that it could happen, but I have never personally seen it, so I haven't even considered your question. But then we all hate AMT, so I probably wouldn't chastise anyone who found a way to reduce it.

I'll concede that itemizing vs std ded is not the same as not taking allowable business deductions, as CalifCPA pointed out, so I will now withdraw my comments that TPE found so threatening. Maybe I'll even stop by his office with some Starbucks when I'm in the Marietta/Alpharetta area next month.

Death&Taxes (talk|edits) said:

10 March 2008
I do hope the client is left with something after the fee. Image:smile.jpg

Kevinh5 (talk|edits) said:

10 March 2008
TPE's office is closer than I thought to my 2nd home in GA - he is off of Abernathy Rd and I am off of Johnson Ferry & Lower Roswell. The Starbucks will still be hot.

TexCPA (talk|edits) said:

10 March 2008
Great arcticle found, No Thanks, Uncle Sam, You Can Keep Your Tax Break by James Edward Maule

and BTW

Code of Conduct

TexCPA

TexCPA (talk|edits) said:

10 March 2008
Kevin: Not unless you get an iced latte

CPAdavid (talk|edits) said:

10 March 2008
Funny thing about internet forums. Whatever you write never goes away. You just never know who's going to do a google search on your topic and read your post. Maybe a client. Maybe your mom. Best to always appear professional. Name calling never looks professional and reflects poorly on our profession.

Joanmcq (talk|edits) said:

10 March 2008
Especially this internet forum which intuit seems to like to have come up in google searches.

Kevinh5 (talk|edits) said:

10 March 2008
point taken.

TexCPA (talk|edits) said:

10 March 2008
Did anyone look up the article I mentioned?

I'm still reading it, basicly it's gets to the language of 'allowed' vs. 'allowable'. even 'by election'

Kevin, you mispelled point, I think you meant Pint?

where the hell is Donnie?

TexCPA

Kevinh5 (talk|edits) said:

10 March 2008
[LINK TO MAULE'S ARTICLE http://works.bepress.com/james_edward_maule/1/]

Donniecastleman (talk|edits) said:

10 March 2008
Hey Tex, here I am, what's up? Has anyone ever filed 22 different state returns with a return? That's been my week, not because I think I HAD to file all of those returns, but I thought it would be fun up until the client started complaining that I hadn't gotten the return done yet, goes out Fed Ex tomorrow morning!

TexCPA (talk|edits) said:

10 March 2008
I was just in the middle of my failed attempt to lighten the mood, no state returns to do here!

Good luck all and Good night!

Finished reading the article I mentioned, put me right to sleep, but very interesting points around page 46

TexCPA

Kevinh5 (talk|edits) said:

10 March 2008
oh I just had the funniest thought: what if the IRS sees Mr Tim Evans CPA's itemized deduction is less than the standard deduction and does a math error correction to the higher standard deduction? What a funny thought! All that 'tax planning' for naught.

CalifCPA (talk|edits) said:

10 March 2008
I don't think this will happen. Certain taxpayers are not allowed to use the standard deduction (e.g. dual status aliens).

LJACPA (talk|edits) said:

10 March 2008
Most of my clients do not qualify for EITC, but this discussion throws me once again into a long pondered question. I've seen this discussed on TA and found that no one thought it was incorrect, but now I'm wondering again. Schedule C purchased quite a bit of equipment, we can Sec 179 or depreciate. You can 'manipulate' the 179 and max EITC. I did this once many years ago and found that I kept questioning how there could be this refundable credit that could be manipulated in many, many ways (like I heard last year that a taxpayer with too many qualifying children would 'give' one or two to another taxpayer so they could also get an EITC - now that's awful!). Is this the same as what this discussion addresses?

Death&Taxes (talk|edits) said:

10 March 2008
Tex: I read Professor Maule everyday. I used to live near Villanova and several times attended seminars there. He is a treasure.

The EITC/179 issue was raised by FredStein last week again, and then I think it was Sandy who always mentions clients inflating income to claim the EITC, and I have mentioned using Form 8814 when the parents are in AMT....and, of course, we have this current issue. Is there a bright line where using the Tax Code becomes gaming the system? Definitely Sandy's people are gaming the system, and I think this electing to itemize comes close to doing. The 179/EITC is based on trade-offs: the person will never obtain those deductions again and may end up giving back the savings with future SE tax, especially in cases where the 179 takes the Sch C to a loss, but there are wages on the return.....I do not think that is gaming the system.

It may be that discussions like this will bring forth new IRS Notices clarifying certain things, though with this rebate it would appear that the horse will have already left the barn.

Jddanford (talk|edits) said:

10 March 2008
This is an interesting issue. I appreciate most of the posts I've read so far. With that in mind, here is my .97 cents worth on how I've tried to balance the issue:

Elections are by definition "electible" (or is it electable? no points off for spelling!!) and are, therefore, "free bait for the taking". If congress gives me the option of electing a certain method, I can employ all of the decision processes (whether tax related or not) involved with making that election. For instance, I would argue that foregoing a section 179 deduction in order to show a profit is not an unethical action. Foregoing a depreciation deduction in order to show a profit would be an unethical action. But, take a depreciation deduciton where percentage of business use comes into play. Here, I try to get a taxpayer to be consistent from one year to the next. Changing the interpretation of business/personal use in year three in order to manipulate income crosses a pretty wide grey line in my opinion. Nevertheless, the line is crossed. Making that interpretation up front and being consistent (per taxpayer), does not, even if the interpretation takes into account that taxpayer may need to show a profit in years 3-5.

Manipulating taxable income, other than by election or some clearly allowable, defined method, to increase SS benefits, EITC or even to improve the odds of obtaining financing is unethical.

I haven't read the above Maule link but I will tonight.

That's just my thoghts, for what it is worth. As in most things, I don't claim to be correct, just that I have put some thought into it.

This turned into a very informative topic for me. I appreciate everyone's input.

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