Karen Lee Posted March 13, 2008 Report Share Posted March 13, 2008 Single TP, no children. I am confused on investment income. TP has $3405. Sch E income (Sub S and Rental) active participation. Is all of this investment income and why didn't the EIC worksheet not pick up this investment income. Plus gambling income of $2057. Int inc of $26. EIC worksheet picked up the $26. only. Let me have it. Tell me to open the book and refresh or get some rest. Don't want to sign my name. Karen Quote Link to comment Share on other sites More sharing options...
mcb39 Posted March 13, 2008 Report Share Posted March 13, 2008 Single TP, no children. I am confused on investment income. TP has $3405. Sch E income (Sub S and Rental) active participation. Is all of this investment income and why didn't the EIC worksheet not pick up this investment income. Plus gambling income of $2057. Int inc of $26. EIC worksheet picked up the $26. only. Let me have it. Tell me to open the book and refresh or get some rest. Don't want to sign my name. Karen Investment Income under EIC Rules includes Net income from nonbusiness rents and royalties. Quickfinders Page 12-5 Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 13, 2008 Report Share Posted March 13, 2008 Single TP, no children. I am confused on investment income. TP has $3405. Sch E income (Sub S and Rental) active participation. Is all of this investment income and why didn't the EIC worksheet not pick up this investment income. Plus gambling income of $2057. Int inc of $26. EIC worksheet picked up the $26. only. Let me have it. Tell me to open the book and refresh or get some rest. Don't want to sign my name. Karen Hi, Karen. It could be that you have the box (blank?) checked for "non-passive" activity on the input sheet for the rental on Sch E, p. 1. I believe rentals are passive by definition. Of course, there must an exception (isn't there always) or the option wouldn't be there to check "non-passive." This happened to me a few years ago. Don't feel bad. We all have stuff like this happen. Well, I do, at least! Quote Link to comment Share on other sites More sharing options...
Karen Lee Posted March 14, 2008 Author Report Share Posted March 14, 2008 The rent income on Sch E is for a shop rented to her Sub S Corp. For the corp to take the deduction for rent she has to report the income on Sch E 1040 right? Can't get more non-passive and she materially participates. So I think IRS just looked at Line 17, 1040 and included it in investment income. Am I correct in my thinking here? More opinions would be nice and thanks for the responses. Karen Quote Link to comment Share on other sites More sharing options...
Cathy Posted March 14, 2008 Report Share Posted March 14, 2008 The rent income on Sch E is for a shop rented to her Sub S Corp. For the corp to take the deduction for rent she has to report the income on Sch E 1040 right? Can't get more non-passive and she materially participates. So I think IRS just looked at Line 17, 1040 and included it in investment income. Am I correct in my thinking here? More opinions would be nice and thanks for the responses. Karen Karen, IRS was right in considering the $3,405 reported on Line 17 on the 1040 as investment income, thus over the allowable $2,900. As your client has already received a letter, I am assuming he filed at least 6 weeks ago. Forms and program updates are being made constantly as you well know. I just created a similar taxpayer's return and the software did the calculation correctly...no EIC. It's possible that ATX has since corrected the program glitch....just a thought. Cathy Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 14, 2008 Report Share Posted March 14, 2008 Can't get more non-passive Karen, I believe you were incorrect to call this activity "non-passive." I made the same mistake a few years back, as I mentioned in my first post. If you look at the directions for Schedule E, under "Passive Activities," rentals are considered passive by IRS unless you are a real estate professional. It was news to me, too, but that lesson learned the hard way stayed with me. Quote Link to comment Share on other sites More sharing options...
Karen Lee Posted March 14, 2008 Author Report Share Posted March 14, 2008 OK...I have done some more research...you're right. I am at home so first thing in the morning I will open the file again and update and see if it recalculates correctly. Thanks so much Karen Quote Link to comment Share on other sites More sharing options...
joanmcq Posted March 14, 2008 Report Share Posted March 14, 2008 Another one of those 'S-corp keep it outa the W-2 gonna save myself a lotta taxes' schemes. I'm sure she paid a lotta money for that tax planning strategy. Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 14, 2008 Report Share Posted March 14, 2008 Another one of those 'S-corp keep it outa the W-2 gonna save myself a lotta taxes' schemes. I'm sure she paid a lotta money for that tax planning strategy. I know. I have one that paid $300 for someone to set up him up as an S-Corp just so he could pay himself wages, then lay himself (and his employees) off, and they all draw unemployment for 3 months during the year. Course, he now gets to pay franchise and excise tax, and his state unemployment rate should be real sweet, too. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted March 15, 2008 Report Share Posted March 15, 2008 And I don't think 100% shareholders can draw unemployment either. Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 15, 2008 Report Share Posted March 15, 2008 And I don't think 100% shareholders can draw unemployment either. Oh, that's just great... Here's another one: Old fart has nothing better to do than set up S-Corps, and LLC's (all by himself, mind you) so he can spend his retirement days making my life miserable. He comes in yesterday with two new S-Corps, that bought and sold about 20 lots, "all long term" he tells me about fifteen times. OK, for starters, you're gonna have to get me dates on all these. After he leaves, I look at the charter filing date: 12/27/07! What do I do with THAT?! Quote Link to comment Share on other sites More sharing options...
joanmcq Posted March 17, 2008 Report Share Posted March 17, 2008 How could an s-corp sell property if it wasnt a corp yet? I hope you charge big bucks for each S. Too bad you aint here in CA; then you'd get to inform him he owes $800 tax for each entity... Quote Link to comment Share on other sites More sharing options...
Karen Lee Posted March 17, 2008 Author Report Share Posted March 17, 2008 I have been all over the MAX program trying to figure out why it didn't pick up the Sch E $ as investment income and disallow the EIC. Should have picked it up. Now I'm spanked and I learned to look closer for that one. The Shop building is owned by the TP and the TP wanted the S-Corp to pay the loan back. The loan payments are classified as rent and reported to the TP. I don't believe it is a good idea to put R/E in any kind of corp. Karen Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 17, 2008 Report Share Posted March 17, 2008 How could an s-corp sell property if it wasnt a corp yet? I hope you charge big bucks for each S. Too bad you aint here in CA; then you'd get to inform him he owes $800 tax for each entity... He/they will have to report these sales on their personal returns. (I don't do their personal returns. Yes, I know, I told him it would be best to let one accountant do it all.) I am about ready to hand it all back to him. He's just like a lot of others who set up business entities; he wants to have the title and the liability protection, but still run it like a half-@$$ sole proprietorship. He's a retired lawyer, and not to stereotype, but I don't think anybody has ever said to him, "You can't do that." Or, if they have, he just smiled and thought, "Lalalalalalal. Not listening. Lalalalala." Well, I had plenty to do before he brought this stuff in here, so it really would not bother me to let him go. Actually, it would probably be good for him and me both! Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 17, 2008 Report Share Posted March 17, 2008 I have been all over the MAX program trying to figure out why it didn't pick up the Sch E $ as investment income and disallow the EIC. Should have picked it up. Now I'm spanked and I learned to look closer for that one. I think you have a box checked that you shouldn't or not checked that you should. Look at top of sch E pages and possibly the EIC worksheets. --- Rita Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 17, 2008 Report Share Posted March 17, 2008 I think you have a box checked that you shouldn't or not checked that you should. Look at top of sch E pages... Sorry, Karen, I meant Sch E input pages. Hey, at least I am increasing my number of posts, huh? Quote Link to comment Share on other sites More sharing options...
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