Large Schedule C Loss

[jasdlm]

Client is a W2 employee. Spouse is homemaker. Client started a side business in 2009 - a single member LLC, so filing on Schedule C as a disregarded entity. Client has a large loss (legitimate for first year of business) that is creating several thousand in EIC. I don't know why, but this doesn't seem right. Has anyone else had a situation like this?

[BulldogTom]

Yes. The client will love you. They probably need the money if they lost that much.

Tom

Lodi, CA

[Lion EA]

They have children, right?

[jasdlm]

Yes, they have one child. Thanks for the replies. It just seems so strange to me.

[jainen]

>>this doesn't seem right<<

In my opinion, earned income for purposes of EIC includes wages, net SE earnings, and a few special items. A net loss is not included in the definition.

[jasdlm]

Jainen - do I simply delete the Schedule C loss from the earned income calculation? Will that prevent the IRS automatic system from recalculating the credit and sending my client one of those 'we've found an error in your return and you are due a refund' letters? (He is entitled to a small earned income credit without the Schedule C loss.)

[kcjenkins]

Yes, if you follow Jainen's advice, the client will get that letter, because the rules of the EIC allow you in add the Sch C net income or loss, in calculating the 'earned' income. So they are entitled to the EIC. It would not bother me, I like seeing some of that EIC money going to working people who are trying to build a business.

[OldJack]

>>So they are entitled to the EIC<<

I agree, their tax return would not be correct if they did not claim the EIC. In past years I have seen millionaires get EIC. EIC, like Obamacare, should be repealed.

[bstaxes]

I've had a couple returns this year. One spouse W-2 other S/E with a loss. Filed return with EIC. TP's were very happy with extra money to help pay some of their debts and I looked good also.