EITC from K-1 self-employment income but zero income

[Gretel]

I am somewhat dumbfounded and need to confirm that ProSeries is doing this correctly. Partners have zero net income due to a prior year carry over for 179 expenses. However, self-employment income shown on line 14A is about 700 more than than the gross income on line 1 due to a gain from asset sales. Is this correct to use this income for EITC?

[Nashville]

I think it's correct

Gretel, I believe it is working correctly. The govt is somewhat protective of self-employment tax, and I do know self-employment earnings in a current year cannot be reduced by such things as a NOL from a prior year. I assume a reduction due to a prior s.179 is treated the same way.

[Gretel]

I see, it just happened that the income for each partner is under the SE limit, otherwise they would have been accessed SE taxes. Thanks.

[taxea]

I agree. A carryover that wipes out the taxable income on a return does not change the fact that the income was earned.

[Gretel]

I agree. A carryover that wipes out the taxable income on a return does not change the fact that the income was earned.

I disagree with this assumption, and this is not what happened. Sec.179 was used to reduce taxable and SE income, as it should. If this was a Schedule C and you can take a carry over 179 deduction, it will reduce both taxes. The only part of SE income that was not eliminated is coming from a gain of a capital asset.