Question about EIC

[edlbym]

Hello everyone,
I hope this is the right forum for tax question. If not, I'm sorry, please let me know where (or feel free to move my post there..)

I'm more of a LBYM than FIRE person in practice (I discovered, or rather, rediscovered this website, not even looking for FIRE info but for tax advice..) but due to several changes (employment, health, some life choices along with those) which I won't bore everyone with all the details, now find myself in "semi-retirement" (I'm quite a few years shy of 65) at least for the time being, starting in 2013. This "semi" means cannot FIRE but am frugal (live on just under 2k/month) and have enough savings to manage with part-time self employment, for the next year or few years..perhaps pessimistically I estimate only 9k in income for 2013 which along with my savings will get me through 2013 (and maybe beyond, though this question is just about 2013)

Now apparently I have something due April 15: I've already filed my 2012 fed and state, but need to file for estimate taxes for 2013, it seems.

A separate post may be my more complicated question, essentially making sure I've got all the 'pieces' and putting together correctly the jigsaw of Schedule C, Schedule SE, and using the preceding, along several worksheets, for Form 1040-ES, and that I hopefully filled them in right..

A simpler question for this post is - are self employed not eligible? I think they are, I found an IRS page at one point that listed "Net earnings from self-employment" as among the sources that count. And yet, after filling out the C-EZ, and worksheet for SE (self-employment) etc, and starting to fill out the ES (estimated) and then looking into EIC (which in previous years my earning were not low enough to qualify for) the worksheet part A, Part 1, step 1 says, "enter your earned income from Step 5" but step 5, part 2 says "Figure earned income:" and asks you to put down "Form 1040, line 7" (and then subtract scholarships/fellowships, worked performed as an inmate, and pension/annuity, and combat pay..which I'm ignoring) but line 7 on 1040 is separate from line 12, "business income/loss, include schedule C/C-EZ" so under my tentative assumption for 2013 (all income being from self employment..this may change, but is my current assumption) wouldn't my Line 7 on my 1040 for 2013 end up being 0?? And then my EIC "step 5" would be zero, and so Worksheet A of EIC, part 1, step 1, would have "0" too, so then step 2 "look up the amount..in EIC Table..if line 2 is zero, stop, you cannot take the credit" is what I'd have.. Yet the IRS page says

> What is Earned Income?
>
> Earned income includes all the taxable income and wages you get from
> working for someone else or you own or run a business or farm.
>
> Taxable earned income also includes:
>
> Wages, salaries, and tips
> Union strike benefits
> Certain disability benefits received before you reach minimum
> retirement age
> Net earnings from self-employment

so what am I missing? And equally importantly, clues on how to fill out Worksheet A correctly and get an EIC there..so I have a better estimate of my 2013 taxes, so I can send a more accurate (lower?) first quarter check, postmarked by the 15th in less than a week..?

As I said all of this is new, the SE, the ES, the C-EZ and the
EIC...but right now the EIC directions have me tumped..Last time I tried posting tax question it was a silly misreading I caught not long after posting..but right now I just don't see it...Thanks!

P.S.: if/when work, schedule, and other aspects of personal
life are more stable I'd like to visit here more often than once every year (or several years!) Used to be on motley fool on and off last decade.. this website seems very nice with a community feel to it..besides while I'm not FIREd I'd like to be by the end of this decade if possible..and maybe rules/fees won't change here as often as motley seemed to ;-)

[kaneohe]

The flow charts here http://www.irs.gov/pub/irs-pdf/i1040.pdf appear to lead to worksheet B here. Have you looked at that? See index for EIC and EIC worksheets. starts p.48, I think, w/ wksht B on p. 54.

[Buckeye]

2012 Earned Income Tax Credit (EITC) - Can I Claim It?

Try the EITC Assistant on the IRS website. This will lead you through step-by-step.

Is your investment income/interest above $3200? If it is, you are ineligible.

[edlbym]

Quote:

The flow charts here http://www.irs.gov/pub/irs-pdf/i1040.pdf appear to lead to worksheet B here. Have you looked at that? See index for EIC and EIC worksheets. starts p.48, I think, w/ wksht B on p. 54.

Thanks Kaneohe...the paper version of the above is exactly what I have been looking at, yes...In my original post above that's what "step 5" etc are referring to, so I think that's what I'm looking at, and it's what raised the question since sub-step 2 in Step 5 (page 50 ) seems to indicate line 7 of 1040 minus some things but not self empl/business income..but YES I see it now! Yup, you saved me, I missed the small print in worksheet A saying to not use it if you have self employment income, thanks Kaneohe! I missed the small print and assumed by Murphy's Law of tax forms that "of course" they expect me to fill out both worksheets...yikes! So Worksheet B only it what it is, a relief :-) Well I'll see if I need to come back here with questions on Worksheet B but here goes. Thanks again.

Quote:

Originally Posted by Buckeye 2012 Earned Income Tax Credit (EITC) - Can I Claim It? Try the EITC Assistant on the IRS website. This will lead you through step-by-step. Is your investment income/interest above $3200? If it is, you are ineligible.

My lines 8a+8b+9a+13 for the year 2012 were far below 3200. Haven't sold anything so just mutual funds etc in non-retirement accounts. Of course I don't know what my 2013 will be, but I did notice this figure for 2012 so my intention is to not sell anything and since a relatively small amount is in nonr-etirment account, it seems like a reasonable probability that for 2013 I'll be under their (same or slightly higher) limit, too. It's just that I'm self employed for 2013 and need my ES estimated taxes so need to estimate my tax obligations which includes the 2013 EIC

Hmmm, now I wonder if I can deliberately see just enough in Dec 2013 to stay "just barely" under the 2013 limit..by looking at my 1099s early...but those change, and don't really need to, so think I'll play it safe and just not sell anything and hope the capgains etc stay under the limit..anyway now on to Worksheet B and hopefully get my 2013 estimated (self empl) tax to the IRS..just a few hundred bucks but don't want to get on the wrong side with the IRS so want that behind me, hopefully will be soon

[edlbym]

But I swear my eyes do that with tax forms at least once a year...if my brain's been worn by enough hours, I re-read and re-read 10 times before posting a question, and still don't see the one 'little' thing (in this case the warning in small subheading of Worksheet A, when to skip it) I'ts like rereading your own essay or paper or memo five times and not seeing the typos...sometimes you need someone else's eyes...guess brains have 'blindspots' too not just eyes and drivers. TA

[kaneohe]

I think the trick is to start early enough in the season that you can afford time off and come back to view with fresh elastic eyes and brain that have rebounded intact from the stress. If you try to cram too much in too short a time period , the eyes and brain gets plastically deformed so that you don't always see the details. Easy to say/hard to do.......happens to everybody; been there , done that.

[edlbym]

Definitely...and I've been there and done that on both sides of that fence...actually usually I do start early and file early...and I did this year too...with the exception that for the first time ever, this year getting my Fed and State done early wasn't all, there was for the first time ever, the Estimated, a third little monster..plus its siblings the C-EZ and SE worksheets..all that for the first time..Oh, and I got really sick with the flu which killed 3+ weeks, which brought us to, yup, 2nd week of April...IBut more rest and breaks/starting early does help. tho in my case I got some kinda dyslexia thing going with missing some lines even when I intend to skip no lines at all.. Anyway did Worksheet B and assuming I did the EIC right then my estimated 2013 is less than 1,000 so I don't have to file ES after all...yay! :-)

Just one remaining thing puzzling me...see next comment..

[edlbym]

So here's the remaining piece of the puzzle...as I said above my estimated EIC for 2013 brought me just under 1,000 so I don't have to file ES (which would have been due April 15 portmarked, for the first quarterly payment is my understanding) But here's the strangeness with the 2013 Estimated Tax Worksheet (page 9 of 2013[sic] 1040-ES) below:

Line 1: adjusted gross income: 7940.39

I got this by the estimated 9,000 from self employment, minus 456 for business expenses equals 8544 (line 3 of C-EZ) then minus 603.61 for the SE-Deduction.

Ok, line2, 6100 deduction

Line 3: line1 minus line 2 gives: 1840.39

line 4: exemption: 3900

line 5 directions, verbatim, and I quote: "subtract line 4 from line 3"

which makes my line 5 NEGATIVE 2059.61 and in my experience, IRS has always, always said "if negative, then put 0" when they mean that, but here the directions definitely do not say that...so did I do something wrong? Because then step 6 is to figure out your tax...on about "negative 2k"...I put zero for tax but it's not even in the tax table, the tax tables start with income of zero....

So, maybe(?) either

1. this is a rare case of IRS forgetting to say "if negative, put zero"

or
2. I did something wrong?

Is IRS thinking anyone filing an ES can't make so little money that they'd have less than 0 after subtracting the 6100 and the 3900? That seems unlikely, there are others who are semi-retired or non-retired but for one year are self employed and make very little (and use savings/investments to cover rest of expenses) I can't be the only one...

I guess this isn't a life and death question and I probably(?) really don't have to file ES by Monday, since estimated are under 1000..but I wanna make sure this last niggling question isn't indicative or something awry with how I filled out the forms..Again I'm just estimating that for 2013 I'll have only self employment income and it will be, I estimate, 9,000, I hope the above step by step until line 6 makes clear the strangeness of being asked to look up the tax on a negative number...anyone know for sure? TIA

[Tyro]

Quote:

Originally Posted by edlbym I'm more of a LBYM than FIRE person in practice

Not fer nuthin, but being LBYM persons in practice is how many of us got to be FIREd!

Tyro

[kaneohe]

My diagnosis: extreme overthinking caused by excessive stress
My Rx: take trip to Hawaii, or someplace similar to relax

If you want to make a contribution to others in your situation, I believe every (or at least some) IRS publications have near the beginning an invitation to
e-mail the IRS w/ suggestions to improve their communications/instructions/publications. They give the e-mail address there. You might consider doing that . Who knows.....the person you might be helping is yourself the next time. Yes, the 1040 has instructions that reflect your thoughts about negative taxable income and the ES instructions should probably be the same.