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IS K1 INCOME CONSIDERED INVEST INCOME FOR EIC PURPOSES.

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IS K1 INCOME CONSIDERED...

IS K1 INCOME CONSIDERED INVEST INCOME FOR EIC PURPOSES

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

CLIENT HAS W-2 OF $18,700 AND K1 INCOME OF $8000.00 3 CHILDREN. SOFTWARE INDICATES EIC REFUND. JUST WANTED TO BE SURE

Submitted: 24 days ago.Category: Tax
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Answered in 2 minutes by:
3/27/2018
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 24 days ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 927
Experience: Former IRS Revenue Agent
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I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 24 days ago

Dear Customer,

K-1 income should/can be investment income. However, K-1 from partnership with active activity should be reported as self employment income. Also, K-1s could be from estate flow through income and rental income flow through, etc. The flow through can be investment income or other types of income such as inheritance. Therefore, we can hardly find IRS directive generally on K-1 only. The income needs to investigated by you because the return preparer is the one nowadays responsible for due diligence test.

It could be investment income. Then, s/he passed the limit of 3,450 of investment income limit. S/he should not qualify for EITC. You need to mark on the software as "not qualified for EITC" or fill in investment income of 8,000 to stop your software to generate EITC.

However, you need to inquire of your client, what is this 8,000. S/he could be over the limit of investment income. This could be also for self employment income and should be on Schedule C or F.

If it is own S corporation, K-1, it can be investment income if the distribution obtained is more than basis. If it is operating income, business income, it can be his earned income or it is his "regular income". For earned income tax credit purpose, it is really work for you to analyze the characteristics of this money. This could be passive income, then, it is his/her investment income. This could be his/her active income, it could be for both. The EITC website does mention, "as a result of you run a business". This could be counted as earned income.

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/eitc-income-limits-maximum-credit-amounts

Regards,

Fiona

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Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
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