NOL and optional SE

[Gretel]

Client has a small biz loss and we are electing optional SE, which will give some some EIC. At the same token I assume that the small income elected using optional SE will also be used to void the NOL.

I mean tax return still shows NOL but I don't believe this NOL can be used in above scenario.

What do you think?

[Nashville]

Optional SE?

Gretel, what is this "optional" SE? I'm assuming you know something for which I am ignorant.

NOL rolled back do not result in a reduction of SE tax, even if the NOL is earned income. NOLs rolled forward likewise do not result in a reduction of SE tax even if the NOL is earned income.

What options are available??

[Jiggers]

Gretel, what is this "optional" SE? I'm assuming you know something for which I am ignorant.

See Schedule SE, you can elect the optional SE method for Schedule C's with losses, and Schedule F's with losses.

There are limits.

And in some cases, it does qualify the taxpayer for EIC.

I have farmers that have losses and want to pay SE tax so that they are covered for disability and future SS benefits.

The income that is being elected to pay SE tax has no bearing on the NOL that may be calculated because of the Schedule C or F loss.

[Nashville]

Yes but

Yes, you can elect optional method calculations for SE with current year losses, but how is this affected by an NOL?

[Gretel]

I am dealing with the current year loss not with a carry-over NOL. Sorry for the confusion.

Jiggers, are you sure? For 2010 not only does my client get EIC but also the Worker's credit (WMPC). So he can eat his cake and keep it too? Do you have any cite by any chance?

[Jiggers]

I am dealing with the current year loss not with a carry-over NOL. Sorry for the confusion.

Jiggers, are you sure? For 2010 not only does my client get EIC but also the Worker's credit (WMPC). So he can eat his cake and keep it too? Do you have any cite by any chance?

Just follow the IRS worksheets for EIC and WMPC. Your software should provide something similar.

A few years back I had the IRS deny the EIC based on the Optional SE tax. Took 6 months (dealing with examiners who couldn't read IRS instructions), but I proved to the IRS that I was correct. I had to copy the IRS instructions and fill them in and mail them to the IRS. They issued the EIC and interest.

[Gretel]

Jiggers, I had to do the same thing for EIC some years back.

My question to you related to the availability of the NOL despite of artificially creating income for SE and EIC.