While using TurboTax Home and Business, Why does adding business expense deductions reduce my federal refund?

[kmathis-]

By inputting business expense deductions, I would think that my refund should increase not decrease.  On the same token, whenever I add business income from a 1099-MISC my refund increases, when I would think my refund would decrease.

Is the software wrong, or am I thinking of this backwards?

[DawnC0 · Accepted solution]

It depends.  Usually, yes, expenses would increase your refund and income would lower it.  However, this is not the case if you qualify for the Earned Income Credit.  That credit varies based on your income, so if you are at the maximum Earned Income Credit amount, but your income goes down, due to business expenses, your EIC goes down by more, which will reduce your refund amount.  

There are other credits that work like that as well, but the EIC is the one that triggers this most often.  If you are using the CD/download desktop version of TurboTax, you can use Forms Mode to look deeper into your return.