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WHY DOES MY REFUND DROP WHEN I ADD EXPENSES ON SCHEDULE C
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Probably because of how some credits are calculated. You are required to claim all business expenses
But be sure it is not your Tax Due that is dropping.
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Claiming expenses, you'd think would help reduce your tax liability not drop your refund, but I found that the income will reduce due to the expenses and if the income is less it could affect your credits; thus affecting your refund.
An explanation is here: https://ttlc.intuit.com/community/taxes/discussion/why-are-all-my-business-expenses-making-my-refund...
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Some above posts are correct in that:
- Your EIC may go down along with your income
- You cannot forgo expenses in order to increase your EIC as this is tax fraud
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A self-employed individual is required to report all income and deduct all expenses. Revenue Ruling 56-407, 1956-2 C.B. 564, deals with the issue of taxpayers not taking all allowable deductions in computing net earnings from self-employment for self-employment tax purposes. Rev. Rul. 56-407 held that under §1402(a), every taxpayer (with the exception of certain farm operators) must claim all allowable deductions in computing net earnings from self-employment for self-employment tax purposes.
Net earnings from self-employment are included in earned income for EITC purposes. It is defined by cross-reference to the definition of net-earnings from self-employment under I.R.C. §1402(a). This ruling applies equally to the EITC. CCA 200022051 also provides insight regarding deduction of Schedule C expenses.