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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1246
Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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Customer Question

 if you see this sorry for having to close browsers and clear the browser cache. For some reason this system was posting transactions in EURO's which my cc provider goes nuts and doesn't allow w/o prior approval. Not sure why the transaction was in EURO's. Is this website/service not in the US, and if not, then not sure a tax advisor from another country would be able to competently respond... The justanswer FAQ mentions the avg fee range is $9-25 but 25 EURO's the system was listing is higher than the avg high side. Hopefully clearing the browser cache will solve the problem and not list things in Euros... I personally had about a 12k loss in 2009 on a sole proprietor. In 2009 I did file the election to forgo NOL carry back to apply on future years when filing jointly in 2009, hoping that 2010 and on would be better as the prior 2 years had very little profit and again in 2010, the net profit on the sole proprietor was barely in the black by a couple hundred. Wife had just started work end of 2009 but had earned about $14k in 2010. It appears that in order to take the earned income credit available on the $14k income level, we have to file jointly and of course there being at least one dependent child (My understanding is that a couple has to file jointly in order to claim the earned income credit from what I read in the IRS instructions, but can not be taken if filing separately, but not sure.) So, if I apply the NOL to 2010 to a joint filing in order to get the earned income credit, won't that all but reduce the taxable income level to very little, causing very little being realized regarding any earned income credit? (which due to the economy is badly needed right now). The question is: Is there any way to skip applying the NOL to 2010 (but apply it to future years) so the earned income credit amount for $14,000 income can be realized but keep the NOL to apply on future years when there is more income and if so, how? But if the NOL has to be applied to 2010 if used at all, is there any way to still be able to get the earned income credit at the $14,000 income level from my wife's earnings level, and go ahead and apply the NOL to what little income was realized as a sole proprietor on 1010 returns (and then carry forward on future years)? Also, I understand in claiming an NOL, a person has to provide a worksheet detailing how the NOL was arrived at which doesn't necessesarily relate to the net loss on a schedule C. Is there an outline / canned worksheet in which a person follows to determine the NOL total that the IRS would allow to be applied?
Submitted: 3 years ago.
Category: Tax
Expert:  Arthur Rubin replied 3 years ago.
To begin with, the EIC (Earned Income Credit) cannot be taken on an MFS (Married Filing Separate) return. And the regulations specify that the amount of EIC is calculated on the lesser of earned income or AGI.

And there is no way to further defer your NOL carryover.

I wish I could be of more help, but there doesn't appear to be anything I can do.

The NOL calculation can be found on Form 1045 schedule A. In summary, the NOL is the lesser of your total loss (negative taxable income before exemptions) and your business loss (including deductions related to your business). You only file form 1045 if you are requesting a "rapid" calculation of the carryback amounts, but it's a good worksheet even if you elect not to carry the amount back, or on an amended return for the loss year.
Customer: replied 3 years ago.
Hello Arthur,

Another fellow by the name of Mark tagged my Q on the 1st but then never responded and then you responded 3 days later (not sure how the system works, but seems a bit strange why he would immediately tag/lay claim to my question, then not respond)

From what you indicate, what I percieved was correct, but it is not clear by your response if I opted to take the NOL filing jointly, if applying a carry forward NOL would affect the earned income credit's level. If we file jointly (where there's probably only $200-300 income on a schedule C income and my wife's earned income is $14,000, will applying the NOL (about a $12,000 NOL loss in 2009) to the 2010 return, would the NOL be applied only to the $200-300 schedule C profit amount, or will it also reduce the wife's $14,000 income to where the reported net icome would then be only about 2,000 (which would of course substantially reduce the earned income credit amount). This is what I'm trying to get clarified. Thank you.
Expert:  Arthur Rubin replied 3 years ago.
I don't recall a "Mark", but I can describe two ways in which an expert might tag your question, and not respond.

I don't know if it's still in effect, but there was a time when the management assigned incoming questions to experts who are logged in, and informed them of the assignment. If they weren't, in fact, logged in, didn't get back to check, or weren't interesting in answering the question, that would explain what you saw.
A more common explanation is that, in order to look at the entire question, it's necessary for the expert to "lock" the question. The initial lock is for 1 minute, and additional locks are for 5 minutes at a time. If Mark looked at the question, and decided he wasn't able or willing to answer it, that would also explain what you saw.

If you're in a "community property" state, all bets are off in regard exactly what goes on MFS returns, but EIC is not allowed on MFS returns. If you're not in a community property state, it's likely that, on your separate MFS return, almost all of the NOL could be carried forward to 2011. However, your wife would be paying taxes on her earned income (less the standard deduction and exemption) at the higher MFS rates. If you your business is profitable in 2011, this may legitimately reduce your taxes.

On a joint return, income and losses from both spouses are combined on the return, so your NOL reduces the joint AGI, whether or not it is considered to reduce "earned income". I haven't had an opportunity to check whether an NOL reduces "earned income" for the purpose of the EIC. So you're correct that the NOL reduces the EIC.
Customer: replied 3 years ago.
Hello Arthur, as you condirmed my suspiciouns, we would of course have to file jointly in order to try to capture what we can regarding the EIC. Are you saying by your 2nd to last sentence that since you haven't had an opportunity to check whether an NOL reduces "earned income" for the purpose of the EIC, you don't know for sure if the NOL would reduce the "earned income" for the purpose of the EIC? If so, the last sentence would be a bit contradictory. I'm looking for a direct clarification if using the NOL would, or would not have an impact of reducing the EIC from what it would otherwise be at a level of the aprox $14,000 'earned' income.
Expert:  Arthur Rubin replied 3 years ago.
I don't know whether NOL reduces "earned income"; but it does reduce total income, and the EIC is limited to the lesser of that due to earned income and that due to AGI. I don't see how it could reduce "earned income" as defined for the EIC, as it could have come from a casualty loss.

To be specific, if your wife has $14000 in earned income, the NOL is $12000, and you have $500 investment income, then the EIC is the lesser of that due to $14000 (earned income) and to $2500 (AGI).

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