[Tyler Franks]

So we'll call it a hypothetical.

Single client comes in and claims 2 kids and has only a a 1099 misc for 10K
for newpaper delivery. Her Milage for the year wipes out her
income...completely. So no earned income. And a zero balance and refund

But when the milage is removed from the Sched C, presto chango, nice fat
EITC refund.

Slight State tax owed but pales in comparison to Fed refund.

So, hypothetically of course, must one take deductions that would decrease a
refund? Any difference in that it's EITC?

And to the stranger end, could one "elect" to take Itemized deductions if
they were lower than the Standard deduction, but it increased EITC because
of the sliding scale that rewards higher income? Hypothetically of course.

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Archived from group: misc>taxes>moderated

[Arthur Kamlet]

In article ,
Tyler Franks wrote:
>So we'll call it a hypothetical.
>
>Single client comes in and claims 2 kids and has only a a 1099 misc for 10K
>for newpaper delivery. Her Milage for the year wipes out her
>income...completely. So no earned income. And a zero balance and refund
>
>But when the milage is removed from the Sched C, presto chango, nice fat
>EITC refund.
>
>Slight State tax owed but pales in comparison to Fed refund.
>
>So, hypothetically of course, must one take deductions that would decrease a
>refund? Any difference in that it's EITC?
>
>And to the stranger end, could one "elect" to take Itemized deductions if
>they were lower than the Standard deduction, but it increased EITC because
>of the sliding scale that rewards higher income? Hypothetically of course.


Choosing standard or itemized deduction is an allowed choice,
except in MFS situations where the other spouse itemizes.


But choosing not to claim actual expenses in order to increase
EIC is not submitting a true and accurate return.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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[Tyler Franks]

>
> Choosing standard or itemized deduction is an allowed choice,
> except in MFS situations where the other spouse itemizes.
>
>
> But choosing not to claim actual expenses in order to increase
> EIC is not submitting a true and accurate return.
> --
>
So would the choice to NOT claim a home office when it is allowed for a
client be just as untrue and inaccurate? Sometimes it is not claimed so as
not to create a "red flag", or to not create a depreciation recapture
situation for later.

I am not seeing a difference, whether itemized or any other above the line
deduction. I can find no requirement to take them if it reduces the net tax
due or maximizes the refund, something the IRS says we may do. But I am
honestly looking to be proven wrong. Any citations from Rulings or cases
would be helpful.

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[Stuart Bronstein]

"Tyler Franks" wrote:

>> Choosing standard or itemized deduction is an allowed choice,
>> except in MFS situations where the other spouse itemizes.
>>
>> But choosing not to claim actual expenses in order to increase
>> EIC is not submitting a true and accurate return.
>>
> So would the choice to NOT claim a home office when it is allowed
> for a client be just as untrue and inaccurate? Sometimes it is
> not claimed so as not to create a "red flag", or to not create a
> depreciation recapture situation for later.
>
> I am not seeing a difference, whether itemized or any other above
> the line deduction. I can find no requirement to take them if it
> reduces the net tax due or maximizes the refund, something the IRS
> says we may do. But I am honestly looking to be proven wrong.
> Any citations from Rulings or cases would be helpful.

This question has come up in other contexts and I don't know that a
satisfactory answer has been determined for every context. The code
implies that, for exemple, it is not necessary to deduct depreciation,
though when depreciated property is sold even non-deducted depreciation
that could have been taken must be recaptured.

But asking this question with respect to the home office is
problematic, because it is so easy to disqualify a home office. One
requirement is that the home office be used solely and exclusively for
business purposes. If you say that you sit at your desk and read the
newspaper each day before starting work, it no longer qualifies. I
doubt the IRS would be able to challenge that.

Stu

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[Paultry]

Stuart Bronstein wrote:

>
> But asking this question with respect to the home office is
> problematic, because it is so easy to disqualify a home office.

But wouldn't it be just as easy to disqualify mileage
expense IF adequate records were not kept?

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[Harlan Lunsford]

Tyler Franks wrote:

And Art wrote:
>> Choosing standard or itemized deduction is an allowed choice,
>> except in MFS situations where the other spouse itemizes.
>>
>>
>> But choosing not to claim actual expenses in order to increase
>> EIC is not submitting a true and accurate return.
>> --
>>

> So would the choice to NOT claim a home office when it is allowed for a
> client be just as untrue and inaccurate? Sometimes it is not claimed so as
> not to create a "red flag", or to not create a depreciation recapture
> situation for later.
>
> I am not seeing a difference, whether itemized or any other above the line
> deduction. I can find no requirement to take them if it reduces the net tax
> due or maximizes the refund, something the IRS says we may do. But I am
> honestly looking to be proven wrong. Any citations from Rulings or cases
> would be helpful.
>
The difference seems simple enough. Your client who delivers newspaper
uses a vehicle in her work and therefore MUST take applicable expenses
on the schedule c. She would not need a home office, nor could she
justify one so that potential deduction is moot.

ChEAr$,
Harlan Lunsford, EA n LA

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[Seth]

In article ,
Arthur Kamlet wrote:

>But choosing not to claim actual expenses in order to increase
>EIC is not submitting a true and accurate return.

What if you can't document those expenses? (I believe I suggested
earlier filing correctly, and hoping the IRS disallows them in audit.)

In this case, the taxpayer has the option to use "actual cost" rather
than "business mileage", correct?

Seth

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[Harlan Lunsford]

Seth wrote:
> In article ,
> Arthur Kamlet wrote:
>
>> But choosing not to claim actual expenses in order to increase
>> EIC is not submitting a true and accurate return.
>
> What if you can't document those expenses? (I believe I suggested
> earlier filing correctly, and hoping the IRS disallows them in audit.)
>
> In this case, the taxpayer has the option to use "actual cost" rather
> than "business mileage", correct?

If you're talking specifically about vehicle expenses, remember that
when one uses a passenger vehicle in trade or business, the business and
total mileage must be reported, whether or not mileage or actual
expenses are used.

As for the propriety of omitting applicable expenses, there is a blurb
in IRS publications, instructions, regulations that Art is referring to
above. Such omissions are not allowed in order to beef up net profit
for the EIC purposes. Since the OP's client has a fixed route for
delivering papers, it's a simple thing to compute business mileage. And
if the taxpayer doesn't do it, IRS can.

ChEAr$,
Harlan


ChEAr$,
Harlan

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[removeps-groups]

On Feb 23, 5:40 am, Stuart Bronstein wrote:

> This question has come up in other contexts and I don't know that a
> satisfactory answer has been determined for every context. The code
> implies that, for exemple, it is not necessary to deduct depreciation,
> though when depreciated property is sold even non-deducted depreciation
> that could have been taken must be recaptured.

Yes, so it's a good idea to always take the allowed depreciation,
because it's going to be added back when you sell your item anyway.
So on a related node, if you have a home office because you use a
portion of your home exclusively for business, then when you sell the
home do you have to add back the depreciation that could (and probably
should) have been taken on the home office portion?

> But asking this question with respect to the home office is
> problematic, because it is so easy to disqualify a home office. One
> requirement is that the home office be used solely and exclusively for
> business purposes. If you say that you sit at your desk and read the
> newspaper each day before starting work, it no longer qualifies. I
> doubt the IRS would be able to challenge that.

What do you mean by "I doubt the IRS would be able to challenge
that"? Do you mean challenge the fact that you read the newspaper
every morning, or challenge that reading the newspaper is business
use? Also, at a lot of big companies (which are probably C
corporations), employees do browse the web, read newspapers, etc, yet
the company gets full deduction and depreciation for everything -- so
is it correct to say that even for the home office, 1% personal use is
tolerated. Surely, there would be no way for the IRS to prove this.

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[dpb]

Harlan Lunsford wrote:
....
> uses a vehicle in her work and therefore MUST take applicable expenses
> on the schedule c....

What if the client didn't have supporting records? Would be "required"
to take an unsupportable deduction?

I fail to see a _requirement_ to take a deduction if it isn't favorable
to do so as long as the income is reported and there's no falsification.
Election to not claim any deduction seems perfectly legitimate to me.

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[Mark Bole]

removeps-groups@yahoo.com wrote:
> On Feb 23, 5:40 am, Stuart Bronstein wrote:
>
>> This question has come up in other contexts and I don't know that a
>> satisfactory answer has been determined for every context. The code
>> implies that, for exemple, it is not necessary to deduct depreciation,
>> though when depreciated property is sold even non-deducted depreciation
>> that could have been taken must be recaptured.

The real dilemma, as I've heard it explained, is created by refundable
credits such as the EIC and Additional Child Tax Credit. Without those,
no rational taxpayer would willingly forego valid net deductions.

FWIW, every tax software I've used requires vehicle mileage evidence to
both exist and be in written form to be allowed (see Form 2106,
2106-EZ). However, I suppose you could actually file form 2106 without
using software and answer either or both of those questions "no", and
see whether your deduction is allowed.

-Mark Bole

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[ebetts3]

On Feb 23, 5:42 pm, dpb wrote:
> Harlan Lunsford wrote:
>
> ...
>
> > uses a vehicle in her work and therefore MUST take applicable expenses
> > on the schedule c....
>
> What if the client didn't have supporting records?  Would be "required"
> to take an unsupportable deduction?
>
> I fail to see a _requirement_ to take a deduction if it isn't favorable
> to do so as long as the income is reported and there's no falsification.
>   Election to not claim any deduction seems perfectly legitimate to me.
>
> --
>
> --
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >

I have to AGREE with Harlan when it comes to not showing "total
expenses" to inflate earnings for EIC purposes. IRS is really
cracking down on EIC abuse/fraud and preparers are subject to severe
monetary penalities. IRS is also taking a closer look at "Zero"
expense Sch C's that "hit the sweet spot" for EIC. Show all allowable
expenses!

========================================= MODERATOR'S COMMENT:
Please please trim the extra stuff away!

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[Arthur Kamlet]

In article ,
Harlan Lunsford wrote:
>Seth wrote:
>> In article ,
>> Arthur Kamlet wrote:
>>
>>> But choosing not to claim actual expenses in order to increase
>>> EIC is not submitting a true and accurate return.
>>
>> What if you can't document those expenses? (I believe I suggested
>> earlier filing correctly, and hoping the IRS disallows them in audit.)
>>
>> In this case, the taxpayer has the option to use "actual cost" rather
>> than "business mileage", correct?
>
>If you're talking specifically about vehicle expenses, remember that
>when one uses a passenger vehicle in trade or business, the business and
>total mileage must be reported, whether or not mileage or actual
>expenses are used.




And just to add:



In order to claim even actual expenses of a vehicle, you
still need to know the actual mileage used for business, and for
other purposes, in order to know the percentage of business use.


Let's say you know the cost of insurance for that vehicle. $1000.



In order to know the percentage of that 1000 allowed as a business
deduction, you have to know the ratio of business mileage to total
mileage.


If 20% of the vehicle's mileage is for business, than 20% of
insurance costs are business.


But you need mileage.


>As for the propriety of omitting applicable expenses, there is a blurb
>in IRS publications, instructions, regulations that Art is referring to
>above. Such omissions are not allowed in order to beef up net profit
>for the EIC purposes. Since the OP's client has a fixed route for
>delivering papers, it's a simple thing to compute business mileage. And
>if the taxpayer doesn't do it, IRS can.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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[Seth]

In article ,
Arthur Kamlet wrote:

>And just to add:
>
>In order to claim even actual expenses of a vehicle, you
>still need to know the actual mileage used for business, and for
>other purposes, in order to know the percentage of business use.
>
>Let's say you know the cost of insurance for that vehicle. $1000.
>
>In order to know the percentage of that 1000 allowed as a business
>deduction, you have to know the ratio of business mileage to total
>mileage.
>
>If 20% of the vehicle's mileage is for business, than 20% of
>insurance costs are business.
>
>But you need mileage.

That's typically only a minor part.

You also need gas. What if the taxpayer doesn't have good receipts
for gas purchases, or even know the total amount?

Seth

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[Harlan Lunsford]

Seth wrote:
> In article ,
> Arthur Kamlet wrote:
>
>> And just to add:
>>
>> In order to claim even actual expenses of a vehicle, you
>> still need to know the actual mileage used for business, and for
>> other purposes, in order to know the percentage of business use.
>>
>> Let's say you know the cost of insurance for that vehicle. $1000.
>>
>> In order to know the percentage of that 1000 allowed as a business
>> deduction, you have to know the ratio of business mileage to total
>> mileage.
>>
>> If 20% of the vehicle's mileage is for business, than 20% of
>> insurance costs are business.
>>
>> But you need mileage.
>
> That's typically only a minor part.
>
> You also need gas. What if the taxpayer doesn't have good receipts
> for gas purchases, or even know the total amount?

Knowing the mileage, and the average miles per gallon for typical
vehicle of make and model, one can easily reconstruct these records,
even considering variations in gas prices, like recently.

IRS doesn't require all meal receipts, remember? So in a case like
this, they would also be lenient on actual gasoline receipts.

ChEAr$,
Harlan

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