Discussion:INCOME FROM S CORP FOR EIC PURPOSE

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Discussion Forum Index --> Tax Questions --> INCOME FROM S CORP FOR EIC PURPOSE


ANIL (talk|edits) said:

21 June 2006
IF A PERSONE HAS AN INCOME IN EXCESS OF $2700 FROM AN S CORP, WILL HE BE ELIGIBLE FOR EARNED INCOME CREDIT? THIS PERSON PUTS MORE THAN 100 HOURS IN HIS S CORP ACTIVITIES. IS THIS INCOME PASSIVE OR NON-PASSIVE?

Sandysea (talk|edits) said:

21 June 2006
This sounds like non passive activity; is his investment of time and money at risk? Income from an S corp is not earned income, but if the person is putting in services of their s-corp, why have they not taken any salary for their services which IS earned income...just a thought:)

JR1 (talk|edits) said:

21 June 2006
The only active income for EIC would be a salary. Without it, it's just like interest or dividends passing thru. And I agree with Sandy, as usual, 100 hours is no biggie, no salary desired or necessary there.

Warren (talk|edits) said:

21 June 2006
I agree that 100 hours is not a huge deal one way or the other. But I do think that it does justify some salary or hourly wage of at least the federal minimum wage. Are there other shareholders? Do they get paid?

Sandysea (talk|edits) said:

21 June 2006
If the earnings of the S corp are so insignificant without wages, then it would be my opinion that wages do not need to be paid at only 100 hours of work per year, but if the client wants to show earned income for EIC, then they indeed need a salary or Schedule C earnings...something that is taxable earned income. TY JR btw :)

Taxref (talk|edits) said:

21 June 2006
Just to refocus on the original question, S corporation profit in excess of $2,700 will cause the EIC to be disallowed.

Riley2 (talk|edits) said:

22 June 2006
The $2,700 in K-1 income from the S corporation will not be treated as disqualified income unless it is interest, dividends, capital gain income, rents or royalties, or passive income. See Sec. 32(i)(2).

Taxref (talk|edits) said:

22 June 2006
Thanks for that correction, Riley2. I was not aware of that.

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