What's the deal with taxes?

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Have a question for someone that not an idiot when it comes to taxes. Last year I did my taxes, the first year of starting a homebased business, filing jointly with my wife. We have a daughter. My business showed a 900 loss due to the overwhelming amount of driving I did. My wife worked some at a taxed job (a few months of that year) as did I. We recieved very little back in taxes (under 200 bucks). Taxes were prepared by H and R block. The home based business paid NO taxes in during the year. This year, the same exact conditions applied. EXCEPT... the business showed a slight (5000 dollar) profit. I was taxed 747 dollars on that 5000, which came out of the Earned income credit. I recieved Earned income credit to the tune of 2700. I am recieveing 2100 back in taxes- more by a long shot than I paid in during the year. H and R Block again did the taxes. My question: there was mentioned, last year, an ability to carry the 900 dollar loss onto any profit that I made this year (5000 would have been 4100, and my 747 deducted from the 2700 EAC would have been lessened), but this was not followed through with. Even after I asked about it. Did H & R screw up or was there some sort of tax change prohibiting my use of that loss onto this years profits? AND why did I recieve EAC this year and not last year? How is it possible that I am recieving money back in taxes much more than I paid in? Is there a change in Earned income credit (what ever that means in the first place, I figured it to mean: You gotta kid you had to support) that allows money above and beyond what was paid in to be doled out. If one accounts for the federal gasoline taxes, I did pay every bit of 2100 into taxes this year, maybe this is what they are driving at??? If this matters: our total combined income was 12K for all of 2001, and that includes the 5000 from the business. Thanks in advance for the help.

-- Kevin in NC (Vantravlrs@aol.com), March 21, 2002

Answers

My understanding is that whomever you paid to do your taxes is responsible for any errors, either way, as long as you provided them with the correct information.

If you use Quicken, you might want to look into a program called TurboTax.

-- GT (nospam@nospam.com), March 21, 2002.


Did you let the preparer have last years return to know the loss existed? If they did, it's possible that it wouldn't affect the outcome. It's deducted from your net, not tax owed. They should have given you a carryover worksheet last year.

EIC has always been like that, if you fall into the right range you will get back way more than what you paid in. You can consider it free money, or a grant, or a type of welfare payment depending on your view of it. Some people make out better in the end to do without a raise in income(unless it's substantial) if they already happen to be in the sweet spot with EIC. With 2 or more children the EIC alone can be up to a bit over $4000 if you fall in the right range.

-- Dave (multiplierx9@hotmail.com), March 21, 2002.


plus, it may have been more to your advantage to not claim the loss so you'd make out better on the EIC. You can always apply that loss some other year.

-- Dave (multiplierx9@hotmail.com), March 21, 2002.

Exactly Dave, if applying the loss put you below the range that gives you the highest amount of EIC, you would not want to take it. According to my charts the highest amount of EIC you can get with 1 child is $2428, so I am assuming your wife must have paid some Federal Tax from her job, or you made some estimated payments?? Even last year, you actually may have been ahead to just not deduct the mileage, showed a profit, paid into the self-employment with the EIC and still received a rebate. There is no law that says you must deduct every expense you are allowed to deduct. Sometimes it is just a matter if running the numbers and seeing which situation benefits you the most.

I know that some here probably do not like the EIC, but it can be very helpful to people with low incomes that have children. By the way the highest amount of EIC you can receive is $4008 and that is for an income range of $10,000 to $13,100. You must have 2 dependent children and meet some other tests to receive this amount.

-- not saying! (knee-deep-in-taxes@USA.net), March 21, 2002.


First off stop using H&R Block !!!!! Find a good accountant , it will be well worth the extra money in returns .After you find such an accountant have him go over your last 2 years of returns .I bet his fee will be founds in extra money back .You ca refile for the extra money.

-- Patty {NY State} (fodfarms@hotmail.com), March 21, 2002.


First, how close are you to the VA border? I use an excellent and competant accountant there. In fact she did our taxes this yr even though we moved to AR. I tried to find a competant accountant here, but no dice, went to one, she looked at my return, wa scomplicated and said, "Um this is complicated, I can't do it!" YIKS! Then I had our accountant in VA do them. I needed to rapid refund so since I am not physically in VA I had to find someone here to do it. I had used H&R Block for 17 yrs til we moved to VA and got the farm, they sure had problems with my returns filing a farm there, but the offices in western NY were fine. So I went to a private CPA. I tried H&R Block here to just rapid refund, I spet 3 hrs last Sat AM with him and he stopped, couldn't do it. GRRRR! So I tried another CPA here, he wants to tamper with my gains form the sale of the farm and make it exempt, can't legally do it from what my accountant there said, so I told him no, got to get the forms back today and jsut mail it in. Ya know, now I know why Hillary got busted in White Water, just kidding, but seriously, I don't think I will be using any accountants here, 2 out of 2 is bad.

-- Bernice (geminigoats@yahoo.com), March 21, 2002.

H&R is like McDonald's. Works ok if you want it fast, simple order from the menu. You want anything special, and the kid behind the counter can't handle it. If you have a couple W2 & interest forms, H&R will be fine. If you have a mix of incomes including self-employed, there are a _lot_ of options to play with, and a good accountant probably will pay his/her own bill. My sister goes to someone who always says if you're not getting audited, you aren't deducting enough (said in humor - no audits...). My accountant really enjoys his job, and smiles when he sees a situation he can use to my benefit. he makes suggestions for next year, and things to watch out for.

The tax laws get very fuzzy & grey, especially when self-employed. Like anything else, the govt likes the big & simple - w2, 2 pages, taxes are done. Self employed is a small business, and you have all the options & deductions of a huge corporation available. You need to exploit them as well as you can (and as well as the corps do - you are competing with them), and a 'fast-food' tax prep place might miss a lot.

--->Paul

-- paul (ramblerplm@hotmail.com), March 21, 2002.


I have to throw in another vote for Turbo Tax. My taxes are fairly complicated, three different small businesses and multiple rentals. A business friend of mine has been trying to talk me into buying a share in the program for years, which I always declined because I firmly believe in in the old tried and true adage, "if it ain't broke, don't fix it".

I fell to his siren song this year, when he invited me to take the program home and look it over. I loaded it and before I knew it, my taxes were done!

The real advantage for a small business person is as mentioned above, you can legally play with the deductions to leverage your best outcome. Vehicle expenses can be one of the best deals around. I average 30,000 business miles a year and it doesn't cost me nearly what the government allows for mileage.

Bookkeeping is pretty simple if you get a good system down. Turbo Tax is great, in that it is very simple to change a number anywhere on your taxes and it carries it through to all the pages of your tax return. When you are done, you have the option to file electronicly for 13.00. I got my refund deposited to my bank in seven days!

-- Tis I (really_tis_i@yahoo.com), March 21, 2002.


I tried Turbo Tax a few years ago and it just did not work for me. The problem is that there are so many different ways to account for things that I could never figure out which was the best way to do it. The instructions are not clear and it is really easy to make a mistake which could cost hundreds or even thousands of dollars. I gave up and hired a CPA. Great guy- he is a devout Christian, and is very honest, but he HATES the IRS with a passion and delights in beating them at their own game. Last year he did my return and when I went to pick it up he showed me that my refund was around $9650. Well, he could not stand to see it so close to 10k, so he went back over it, found some numbers which could be further manipulated, and got the refund up to a little over 10k. Which just proves that there are so many different ways to account for things- I can't begin to keep up with the changes in the tax code from year to year, so I am happy to pay the CPA to do it and feel it is money well spent

-- Elizabeth (ekfla@aol.com), March 21, 2002.

I think EIC is welfare. I have no problem with people who legally do not make enough to pay taxes, but no one should be getting more money than they put in in the first place. Although, until they fix the law, since you are entitled to it.

As to the value of a CPA vs. using TurboTax, it depends a lot on the type of deductions you take. If you take regular deductions that don't rely so much upon "interpretation", TT will serve you quite well and, as was mentioned, you can go through and change things very easily. On the other hand, if the deductions fall into a "questionable" category, as in they are "audit flags", then a CPA (or even a tax lawyer) is more appropriate for your situation.

-- GT (nospam@nospam.com), March 21, 2002.



Since were on the subject of EIC.......when, why and how come people with kids started getting the extra money? When we had kids they didn't send us money. Where does that money come from? I just don't get it.

-- Jo in Central Wa. (countryjo16@hotmail.com), March 21, 2002.

Elizabeth and GT should check out the current versions of Turbo Tax. Since I am a new user, I cannot compare with past versions, although the guy that sold me the program says it gets easier each year.

All I can say is that it is very easy to use. It asks all the questions you need and is very intuitive. Further, it checks your return for red flags or errors with the same method that the IRS uses.

-- Tis I (really_tis_i@yahoo.com), March 21, 2002.


I have my own "home based" business and I love tax season. I actually send my taxes to a women in GA because she does a great job, X-IRS employee and I get wonderful refunds !! I would ask around to other business people and ask them about their refunds, and who they get to do their taxes. Good Luck !!

-- Helena (windyacs@npacc.net), March 21, 2002.

'Tis I, we do use TurboTax and are very happy with it, but if you're looking for obscure tax ruling interpretations (that only tax lawyers, CPAs and people who subscribe to $$$$ newsletters like Boardroom Reports would know so they can mention to an auditor "well, in IRS vs. so-and-so...."), no computer program could possibly encompass that. That's what I meant to bring out, and apparently didn't do a good job of it.

Also, I just think that some people are more comfortable having someone else with them just in case they get audited.

-- GT (nospam@nospam.com), March 21, 2002.


The EIC (Earned Income Credit) has been around since the early 80's that I know of. It only applies to "low-income" people which has been progressively raised over the years and now you can get something ranging from $2 up to $4008 as long as your income is below $32,120. Even people without children can get something but income must be below $10,700 if you have no children. In the area where I live most everyone with children qualifies for this refundable tax credit...

The thought is that this helps people with low-income so that they don't need any other government aid thus saving money in the long run.

-- Melissa in SE Ohio (me@home.net), March 21, 2002.



Get rid of H & R Block. My kids just got rid of them. We have our our Accountant for the Farm . He knows what he's doing. He's there for advice everyday. Mountain Ashe Acres Farm-Upstate,NY

-- Gary and Pris (MTASHEACRES@AOL.COM), March 23, 2002.

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