In some cases, entering deductions can decrease your refund. This is not particularly common, but there are a few likely culprits when it does happen:
-The Earned Income Credit. Lower income, in some cases, means less credit
-IRA contributions. Having too little earned income can make contributions subject to a penalty
-Additional Child Tax Credit. Also can be negatively impacted by reduced earned income
-Child and Dependent Care Credit. Can be negatively impacted by reduced earned income
-The Home Office Deduction: Having a home office when your income is already low or negative can "waste" benefits that are otherwise deductible on Schedule A
Your wife's business reporting should reflect her true expenses, and not be manipulated to produce a better tax result. That being said, many people do overdo it with driving expenses, deducting miles that are commuting or personal.
I would recommend that you remove the miles and preview your tax return (1040) to get a snapshot of the "before", and also ensure that the mileage (and other expenses) aren't inflated.
Preview your 1040 here:
- My Account
- Tools
- View Tax Summary
- Preview 1040
