Filing Tax Return...Please help! Someone!

Sure is... Considering the factors you mention, Your family will benefit from the EIC credit.

Yes, it is quite possible. I just ran the numbers and see you getting around a $2500 refund.

With $11000 is total income, you will owe no income tax, because your standard deduction and personal exemptions will wipe out the entire $11000.

You will have $1554 in self-employement tax. However, you are eligible for a $4090 earned income tax credit. This is a refundable credit -- you can get it even if you didn't pay any taxes.

Subtracting the $1554 SE tax from the $4090 EITC leaves you with a $2536 refund.

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

Yes, it's not only possible, it's probable. You clearly qualify for the Earned Income Tax Credit and may also qualify for the Additional Child Tax Credit. Both of these are "refundable," meaning that even if you didn't pay a penny through withholding or estimated tax payments you'll get a check from the government. Since your income was from self-employment, that should be reported on Schedule C, with the bottom line of Schedule C on line 12 of the 1040. Your self-employment tax is calculated on Schedule SE, with the amount of tax from that schedule on line 58 of the 1040 and half that amount on line

-- Phil Marti Clarksburg, MD

Whoa there! Don't indict your tax preparer just yet. This sounds like the net effect of the earned income tax credit, with two kids. It peaks at around $11K. Little (likely -0- income tax effect, net of self-employment tax, plus the EITC effect). Tax pros don't make the law; they may only here charge a fair $200 for the few schedules to get you your refund.

Your tax preparer should have explained this to you in a few minutes. Leastwise, if you return is accurate and it sounds though it is, would you rather someone else greedily charge you like $500 to crank out same 1040 schedules off computer and brazenly claim "tax expertise" for the net $2200 to you?

Alternatively, rather all in a day's work, and it sounds as though he/she had more integrity than that. And more likely rather busy in any given filing season, though I personally would taken the few minutes to explain to you....

Fred F.

Sounds about right. If you earned $11,000 from self employment, you would owe no income tax at all (standard deduction for MFJ plus 4 exemptions totals $23,500). You would owe self employment tax of about 15% or $1650. You get the Earned Income Credit of $4,300, netting you a refund of $2,650.

The Earned Income Credit is "free money" potentially given to families earning up to $38,000. And this year you also get $60 as a refund for the telephone excise tax they illegally collected from you.

-- Don EA in Upstate NY

Yes, it's possible. Using just the information that you gave here, I came up with a refund of $2,596. There may be some details you omitted, or I may have missed something, that could add another $100 or so.

It's not a rip-off, but you could have gotten your tax return done for free at a VITA center. Try that next year if your income is still low.

That's not entirely true. They do give money to people with low income in many cases. Specifically, it appears that you qualify for the Earned Income Credit (EIC), which is, in fact, a program to help working people with low income by giving them a tax "refund" of more than they paid. Bob Sandler

Your income tax is -0-. Your Self employment (social security) tax is $1554. Your Earned Income Tax Credit is $4090. Your Longdistance telephone excise tax credit is $60. Total payments are $4150. Your refund should be $2596. If this is what your CPA said s/he is correct. Missy Doyle

wrote

I'm not going to run the numbers, but yes, the refundable child tax credit and EIC may be sufficient to more than cover any tax liability from SE tax.

Probably not. My return fees start about that level.

I would question that policy.

Yes, you are ultimately responsible.

Actually, Congress has provided for the very situation you are in. EITC and a refundable child tax credit may be the issues you are benefiting from. You should have a copy of your return, look at lines 66 and

1. If there are dollars there then that's most likely what's causing you to get a refund when you didn't pay anything in. It's legit if it's there - or so you should assume.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

First of all, let's dispense with the "rip-off" concern: You paid the CPA for his knowledge of tax law, and the preparation of your return. $200 does not seem extraordinary, considering the several forms involved. Second, the resulting refund is not at all implausible. Here's how it might have been calculated: You "earned" $11,000 as a "self-employed" person. On that, you would be charged $1554 for Social Security and Medicare (calculated on Schedule SE, based on 92.35% of your total earnings). With a non-working spouse and two children, your approximately $11,000 AGI would be erased by the standard deduction ($10,300 for MFJ) and 4 exemptions @ $3300 each -- for a total of $13,200. The Self Employment tax (line 58 on Form 1040) would be shown as $1554, as noted above, but then you and your spouse would be entitled to $4410 as an Earned Income Credit shown on line 66a (and calculated through filing of the EIC Form and Worksheet). Subtract $1554 from $4410, and the result is $2856. That's close enough to the "about $2700" that you cited, that the rounding of some of your numbers could easily account for the difference. So it is true, that you could be perfectly entitled to that "refund" despite having paid no income taxes at all. (The government purpose behind this program, is to encourage you to work and earn income rather than simply draw welfare.) Ain't life grand in the USA?

Bill

Actually, based on what you've posted it does not seem out of the ordinary. with 2 kids $11,000 in SE income and no expenses associated with the income and filing a joint return I get about $2,600 with the Earned Income Credit and without figuring a state potential. I do have a problem with your "CPA verbally gauranteed the "REFUND" and stated that he would refund us the $200 fee if the IRS does not pay." If this was before s/he knew anything about your situation the statement is unethical/illegal ... If however it was after s/he knew your details and was in answer to a query from you about where you stand then I've no problem with it. Make your own decision based on my posting.

Regard,

Mark Rigotti, CPA

You are receiving an earned income credit, this is why you are getting money back.

It's called the Earned Income Tax Credit and is a refundable credit. That means that even if you owe no taxes, the IRS will refund you this credit. In your income range with 2 children, it should be about $4,000. You probably also qualify for the telephone excise tax refund of $60.

My computer calculates a $2,596 refund, assuming those are really all the pieces you have, and that the amounts are exact.

Earned Income Credit.

Is there any particular reason you didn't ask the person who prepared your returns to explain them to you before you signed them? Phoebe :)

$2,700 is in the right ball park for a self-employed person with wife and two kids.

Actually, the IRS has what it calls refundable credits. One of these credits is the Earned Income credit. Another one is the child care credit. These credits are offset against the taxes you owe. If the credits are more than the tax you owe, then you will get a refund. HOWEVER, no reputable CPA will guarantee a refund. The fee is a little high, but probably not unreasonable, depending on where you live. The CPA is not responsible for the information on the return, only the taxpayer is.

No, that is not true.

You have apparently not heard about the Earned Income Credit (EITC), which will give you a refund (or reduce your taxes) even if you had nothing withheld. It is targeted for low and moderate income families, such as yours. It is discussed in your 1040 instruction booklet, or in much more detail in IRS Pub 596. Or, you can just ask your CPA to explain it to you (after all, you paid him for this return!). However, based on the AGI figure you gave ($11,000 net income) and your family size (married, 2 children), your refund/credit should be about $4,400 this year. If your CPA erred, he seems to have forgotten one child! Definitely a reason to contact him. Maybe he doesn't know about the baby. I'm surprised that you have not been aware of this Credit, as it has been around for many years. You might want to check your tax returns from 2004 and 2005 to make sure that you received this benefit (older returns are now closed for additional refunds). If the credit does not show on these returns then you should be filing amended returns for those two years (assuming you meet all the qualifications).

That "Please help" certainly elicited a lot of replies.

It was also fascinating to see the range of answers, when many of us couldn't resist taking a quick, rough crack at running the numbers. Several agreed on the $1554 SE tax, but EIC amounts were all over the place. (I simply checked the MFJ with 2 children EIC Table line for 11,000 to 11,050 for a ballpark figure, and found $4410.) Guess that shows the "helpful" spirit is alive and well in misc.taxes.moderated.

But it also shows why tax prep stupifies the average American. If 15+ pros (or semi-pros, like me) can arrive at

Bill

"If I got this significantly wrong I won't take a fee." What seems questionable about that sort of policy? (Especially since it's a $200 simple return; I wouldn't expect the same guarantee on a $5,000 very complex return.) Seth

That is why I gave the answer to the closest $100. As is generally my practice, if I have not been paid (yet), you don't get an exact answer.