Every year we come across San Diego County residents and business owners who failed to take advantage of the Earned Income Tax Credit properly. In fact, the IRS reports that a little over a fourth of tax payers that apply for EITC have done so with errors. Could you fall into this category? Check below to make sure you avoid the most common errors.
1. Claiming a child who is not a qualifying child.
A qualifying child must meet all four requirements including relationship, age, joint return and residency requirements. Only one or two of the requirements met does not determine eligibility for the EITC.
You are required to make additional inquiries to determine client’s eligibility based on their information. Form 886-H-EIC comes in handy in such cases with outlines of documents needed to prove client’s claims.
2. Married taxpayers incorrectly file as single or head of household.
Defining the head of household and exceptions could be complicated to many taxpayers, while on the other hand some unintentionally (and sometimes intentionally) claim single or head of household to claim more EITC. The IRS will quickly red flag this error.
3. Income-reporting errors.
Reporting income must include all income and allowable expenses. The most common errors causing under-reporting and over-reporting of income and expenses to qualify for or maximize EITC are:
- Claiming a large loss to bring income down
- Bogus or inflated Schedule C income
- Not claiming all business expenses or claiming no expenses
Self-employed entrepenuers throughout San Diego County should be sure to utlize Form 1099s. If you choose to get the advice of a professional, be open to discussing a few questions they may have. This will help them to prepare your taxes in a way that will be most advantageous to your business.
For more information on due diligence requirements and examples that can help you determine the facts, contact us for kind professional assistance.
Securities and advisory services offered through NATIONAL PLANNING CORPORATION (NPC). Member FINRA/SIPC a Registered Investment Adviser. National Tax & Financial Network Inc, Pacific Tax & Financial Group Inc and NPC are separate and unrelated companies.
NPC does not provide tax advice.