EIC for the Rich?

[BHoffman]

I cannot find anything that actually proclaims that SCorp pass through income is investment income. I can find IRS information that says it is not self employment income.

I do know the losses are not treated as investment losses - they are limited by "at risk" rules and not PAL rules if the shareholder is an active participant. Scorp losses are limited by basis and are not subject to capital loss rules. So, I'm going to make a reasonable conclusion that if the losses aren't subject to investment loss rules, then the income isn't investment income.

So, I've written up my "research notes to file" and am going to file this return with the dreaded EIC on it.

Thanks very much to all, especially RitaB, for your kind attention during crunch time.

[PIGLEE]

I use Drake, and if a person might qualify for EIC, it will give you a warning or suggestion to check to see if the person qualifies for the EIC. When I see the warning then I go and answer the questions for the children and the 1 page 8867. If they then qualify I will do the other due dilligence forms.

I don't do very many EIC returns, but once in a while I am surprised with a single person who qualifies, and sometimes surprised with a couple with children, who have not qualified in the past, but because of lower income, or the higher rates they do qualify. So in Drake in the View Forms check out the Red and Yellow pages, they really help you not to forget anything.

Jan

[BHoffman]

It is covered in IRC 32(i)(2). I only know that because of this:

http://www.taxalmanac.org/index.php/Discussion:INCOME_FROM_S_CORP_FOR_EIC_PURPOSE

Riley2 (and Burke) are sharp folks.



Now, we need to prove that the $7000 counts toward the EIC. Surely it does, I am looking.

Wow, you guys are fast and posted while I was preparing the above post.

RitaB - you are awesome for finding that cite, and right on about Riley2 (he posts under R2 now) and our friend Burke!!!!

[RitaB]

Well

Right, of course members of an LLC which files as an S corp are not self employed.
S corp stockholders/officers, etc never have been considered self employed by IRS.
I remember looking that up way long time ago in 1980.

Well, they do get to deduct health ins premiums on the line for self-employed health insurance premiums...

Nothing is simple anymore. Why any lay person (for lack of a better term) would try to prepare their own return is beyond me. Suppose they pull their own teeth, and do their own apendectomies, too.

And, yes, those comments were totally unrelated to anything in this thread.

BHoffman, glad to help. You guys have taught ME so much, and I appreciate all you folks as well.

[BHoffman]

Piglee - I also use Drake, but believe it doesn't really "know" about weirdo things like this.

For instance - If I put $5k on the "rental income" line 2 on the S-K1, the program allows the EIC. But if I put $5k on Sch E pg 1, it does not allow the EIC.

I believe SCorp rental income is passive income for EIC purposes, but hey, might be wrong and thank goodness don't have to look that up today!

[Gretel]

I would think that the issue of S-Corp. earnings being investment income should depend on if the shareholder is active in the biz or just an investor. I don't know if this logic can be applied here but in absence of other regulations this is what I would go by.

[BHoffman]

Gretel - you are right and I made sure the shareholder actively participates in the business.