Not Using Schedule C Deductions

Technical topics regarding tax preparation.
#1
Saru  
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New situation for me. Usually I try to find and use all legitimate business deductions but for one client, it's better for him to have more income.

We are in Florida, which didn't expand Medicaid so client falls into the ACA coverage gap. My client is self employed and his business hasn't done too well the last couple of years (ironically due to his own medical problems.) He doesn't expect business to pick up until later in 2016 if it gets better this year at all.

On his 2015 Schedule C, if I include all income and expense as usual, his income falls under 100% of FPL and he will lose ACA subsidies. However, if I don't utilize all of his expenses, I can get his MAGI to a certain place where he owes a small bit of taxes for 2015, but continues to get substantial PTCs for 2016.

Here's my question. Is it ethical to not claim all business deductions in order to get PTCs? My client is fully involved with this decision making. ALL income is reported, it's on the expense side we are tinkering with. He doesn't expect his income to be substantially different in 2016. If we lived in a state with expanded medicaid, this wouldn't be a problem. Thoughts?
 

#2
JR1  
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We've chatted on this in re: to the EIC....and you're not permitted to leave them out.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#3
Saru  
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We aren't filing for EIC.
 

#4
WEISSEA  
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Can't pick and choose business deductions. Better to find an excuse, e.g. no written log to support auto expenses and cellphone use as required by IRC 274.
 

#5
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Does your client have mileage? Is his log perfect in every way? No? Then no deduction for mileage. Be strict with him.

How about depreciation? Do you have to elect s179? Can you elect out of bonus?
 

#6
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You are asking if you can file an inaccurate tax return so that your client can receive tax credits they are not entitled to. What do you expect us to say? If you feel like behaving this way, because you feel like the ends somehow justifies the means its better to keep it to yourself.
 

#7
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There are some exceptions in the instructions where you can qualify if your income is below 100% of the FPL if it was estimated to be at least 100% at the time you enrolled. Could you day he expected his income to be higher? Take a look at page 7 of the Form 8962 instructions.
 

#8
Saru  
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Ok, after hearing from you folks and reviewing how the IRS looks at self-employed individuals claiming EITC, I'm no longer comfortable just excluding expenses. It's going to be a blow to my client and it really sucks.

I've never been an "ends justify the means" kind of preparer but I think in this situation, looking at the real world consequences to this guy, I was rationalizing things that I shouldn't. Thank you for your input.
 

#9
Coddington  
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What kind of business?

You might be able to change to an "unfavorable" accounting method to defer expenses or accelerate income.
-Brian

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 

#10
Saru  
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He designs and builds disc golf courses.
 

#11
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TaxMonkey wrote:You are asking if you can file an inaccurate tax return so that your client can receive tax credits they are not entitled to.

Your word “inaccurate” is loaded. But if we take your question at face value, and if you have the answer, based on a tax law authority, then show it to us. Ditto for Weiss. And ditto for Sumwun. I’m not saying you’re right or wrong, but I am saying you are all basing your opinion on nothing but your instincts, and perhaps, the guidance that we do have in the EIC area. If you believe the EIC guidance, and the history of it, should extend to the PTC, even though there is no explicit guidance on the PTC, then express your opinion as to that, perhaps comparing and contrasting the provisions.
 

#12
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JR1 wrote:We've chatted on this in re: to the EIC.....

We chatted on it regards to a lot of things. Saru would be wise to find tha thread, which contains the treatise written by Professor Maule, along with Professor Maule’s direct post on TPT.
Saru wrote:We've chatted on this in re: to the EIC.....

What do you mean by “income” – how is it defined – is it with reference to what is reported on a tax return?
 

#13
JR1  
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He's got the right answer. Helping a client commit fraud by getting tax credits they're not entitled to violates my two cardinal rules. Keep them out of jail. Keep me out of jail. Not in that order.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#14
Nilodop  
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What do you mean by “income” – how is it defined – is it with reference to what is reported on a tax return? Isn't it defined in 26USC36B and 42USC9902?
 

#15
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Jeff-Ohio wrote:
TaxMonkey wrote:You are asking if you can file an inaccurate tax return so that your client can receive tax credits they are not entitled to.

Your word “inaccurate” is loaded. But if we take your question at face value, and if you have the answer, based on a tax law authority, then show it to us. Ditto for Weiss. And ditto for Sumwun. I’m not saying you’re right or wrong, but I am saying you are all basing your opinion on nothing but your instincts, and perhaps, the guidance that we do have in the EIC area. If you believe the EIC guidance, and the history of it, should extend to the PTC, even though there is no explicit guidance on the PTC, then express your opinion as to that, perhaps comparing and contrasting the provisions.


The original guidance came from Revenue Ruling 56-407, as it pertained to social security credits. And yes, I believe that the EIC guidance would apply to all tax credits with eligibility or amounts determined by income. The IRS guidance on that was CCA 2000222051:
https://www.irs.gov/pub/irs-wd/0022051.pdf
 

#16
Saru  
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JR1 wrote:He's got the right answer. Helping a client commit fraud by getting tax credits they're not entitled to violates my two cardinal rules. Keep them out of jail. Keep me out of jail. Not in that order.


I failed my own internal test which is "Can I lay this all out in front of an IRS auditor and get a thumbs up?" I couldn't this morning but now I can.

So the situation is resolved. Client is unhappy and will likely cancel his insurance. He now falls into the "coverage is unaffordable" exemption.

PS I'm a she ;)
 

#17
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The exception to 100% of the FPL is having received aPTC during the year.
 

#18
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Jeff, old bean, my answer had bog all to do with tax authority. It was intended to suggest a pragmatic approach, by taking the line of least resistance. Of course, the numbers may not have worked, but if they had, I really do not see the problem.

BTW, I cannot take credit for such a fine wheeze. That honor belongs to the estimable Fred Stein, who is rather too infrequently on this board, offering his unique perspective on things.
 

#19
NYea  
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Sumwun writres: Does your client have mileage? Is his log perfect in every way? No? Then no deduction for mileage. Be strict with him.


I think Jeff in Ohio is on target.

It's certainly not that simple. The regulations for §274 suggest what are "best records" but there is provision for substantiation by other sufficient evidence including oral testimony of the taxpayer. Do you really think a taxpayer such as a landscaper with a truck could simply say "no records" and the IRS would not impute mileage in an audit?
 

#20
Coddington  
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Designs and build disc golf courses? So probably not much inventory, unless he also develops disc golf courses for sale.

I would look at ADS elections for all asset acquisitions and improvements for this year. No section 179. No DMSH election. No SHST election. File an election under section 1.263(a)-3(n) to capitalize repairs using the book method. Consider moving from cash to accrual (or vice versa) depending on which results in more income. No last minute IRA or other retirement plan payments. Look at payments to independent contractors to see if they can be deferred under section 404(d). Same thing with related parties under section 267. If you file any method changes with a positive section 481(a) adjustment, elect to take positive section 481(a) adjustments of $50,000 or less into account in the current year.
-Brian

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 

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