Investment income disqualified EIC

[dyne]

I just prepared tax returns for a client's daughter who would for the first time qualify for
EIC as she moved out into her own home, had a child of her own and is unmarried and
turned 26 years old. BUT her investment firm sold stock and reported dividends for the
first time which totaled $4521 which disqualified her from being allowed $2351 EIC AND
caused her federal tax to increase by $408 as a result of the stock sales. She was
NOT asked if she desired for the stocks to be sold. I thought this was interesting.

[Gretel]

I cried with some of my clients over this. I don't believe that any sales can be made not having the consent of the taxpayer, probably signed a blank one when the account was created. This is the purpose of having an investment account, that the broker makes you good money.

It is only despised if it interferes with EIC. If clients would talk with us more before making any financial move then they wouldn't have this "hardship".

[David1980]

I feel especially for the ones with rental income that puts them just a few hundred over the limit losing them thousands of dollars. To think if they charged $25 less rent a month they would have been thousands of dollars better off. While I dislike EIC, I wouldn't be opposed by changing it from the current investment income limitation to instead say, reduce total EIC by investment income. So too much just reduces EIC and you don't get that $1 more you get $5,000 $1 less you get $0 scenario.

[Jiggers]

The purpose of EIC is not to give a benefit to someone with investment income. If you have investment income, rents, dividends, interest, etc., then you really don't need EIC.

EIC is to assist those low wage earners with nothing.

Now, I don't like EIC because it is abused more than the benefit that it is supposed to provide.

[ChEAr$]

Adding to comments by my Texas colleague,....

The NERVE of some people, having capital gains income on which maybe the tax rate is zero! Can you imagine?

[RitaB]

Yeah

The NERVE of some people, having capital gains income on which maybe the tax rate is zero! Can you imagine?

Yeah, guess they are not all in the 1%, huh?

[David1980]

The purpose of EIC is not to give a benefit to someone with investment income. If you have investment income, rents, dividends, interest, etc., then you really don't need EIC.

EIC is to assist those low wage earners with nothing.

Now, I don't like EIC because it is abused more than the benefit that it is supposed to provide.

I just dislike the idea of tax rates > 100%. In effect, by increasing the investment income from $3,150 to $3,151 for a taxpayer eligible for the maximum EIC of $5,751 that $1 of income is in effect being taxed at a tax rate of 575100%. How do we justify telling the person that has $3,150 that they get this large refund while the person who earned $2 on a savings account and that's the only difference between the returns does not.

If it were changed, say we eliminate the maximum investment income rule and replace it with a dollar-for-dollar reduction in EIC by investment income. Assuming both taxpayers with $3,150 and $3,151 qualify for $5,751 of EIC you would subtract their investment income and they would retrospectively receive $2,601 and $2,600 of EIC. Seems much more fair.

Of course, the better solution is to eliminate EIC, but congress will never let that happen.

[RitaB]

You are so right

Of course, the better solution is to eliminate EIC, but congress will never let that happen.

Sadly, agree with both points.

[jimenright]

Not being qualified

for the EIC is a good thing!

[taxxcpa]

If the EIC is to be retained at all it should be a non-refundable credit.
Welfare should be handled by the Welfare Department, not the IRS

[veritas]

Well

If the EIC is to be retained at all it should be a non-refundable credit.
Welfare should be handled by the Welfare Department, not the IRS

then, how could the gubmint get our votes?

[FEDUKE404]

Finding those votes

then, how could the gubmint get our votes?

I hear that the generous education credits for 10 year-olds can also be a very productive route.....

And don't forget the Additional Child Tax Credit fiasco:

http://www.wthr.com/story/17798210/tax-loophole-costs-billions

I'm still mulling over refusing to prepare ANY future EITC tax returns, except perhaps for long-established clients. T'aint worth the risk!!


FE

[joanmcq]

I agree if anything, the EIC is for people with nothing. If the daughter has enough dollars invested to have an investment manager, she probably doesn't need government hand-outs.

So maybe she should change to an account where the sales have to be ok'd by her before being made? She's 26; time to learn financial management.

[Snaggletooth]

EIC Income Levels

I'm following the gist of this thread, where EIC recipients are considered poverty-level. I'm sure this is true for those of you living in the Bay Peninsula of California, greater Boston, suburban Washington DC.

But I've referred to myself as rural south, and $35-$40K in my area is "middle-income." Even more so, now that manufacturing plants have left. Husband working part-time at Home Depot and wife working part-time at Wal-Mart bringing home maybe $38K between them? You're talking middle-income for my part of the country. Other hillbillies such as Bart and ChEAr$ (maybe Rita and GeekGirl amongst the wimmenfolk) can comment about their little corner of the world.

Anyone with significant investments was considered to be too "wealthy" for EIC by congress from the very beginning.

What about someone who has sale of stock proceeds over the limit, but sells at a loss? Does the investment income limit apply to "proceeds" or does it apply to "income"? Two different things -- I always thought it applied only to income.

I also have a problem when I look at a 1099-B and there are hundreds of transactions because the client gave his broker a green light to buy and sell as he pleases. They face big tax prep costs (even under the new rules). But there are too many people who feel they are too unsophisticated to do their own transactions. And the bad thing: I don't see where hundreds of transactions give the client any better return than a few well-chosen ones.

[joanmcq]

It's income, not proceeds. Same with rentals. I had a client with a rental that qualified for EIC, and I had to fight the notice regarding net, not gross income.