Earned Income Credit

Ok, Andy asked the question and I can't help but to respond. Especially if it is a matter of taxes or financial planning.
The Earned Income Credit (EIC) has been a part of the tax code as long as I have been preparing taxes - about ten years. Most of you have never heard of it because you earn over the income limit to qualify.
Think of a bell curve. If you earn very little you don't get any EIC. If you earn too much you don't get it either. In the middle you could get about $4,000 even if you don't owe any taxes. This is a refundable credit which means you get it even if you don't have any withholding or don't owe any tax. You just have to have earned income. It's like a hand out. No, it is a hand out. A non-refundable credit can only be taken against taxes owed.
You may be asking why Congress enacted the EIC. Why did the senators and representatives that YOU elected want to give some of the taxes you pay to low income people? Well, it was seen as an incentive for people to go to work. No earned income, no EIC. Then, I suppose, once they started to earn more and become mainstream workers the EIC is reduced. Can it be abused? Sure, just like any other tax regulation that has its primary purpose to effect social behavior.
Let's suppose I have a client who is a single mother with two children. She receives Social Security survivor benefits for herself and her two children because her husband had passed away. She has the ability to work but she chooses not to. I advised her that if she went to work and only earned about $14,000 that she would get another subsidy from the government in the form of $4,000 of EIC. Suppose she does that. Then she moves in with boyfriend who earns $40,000. My single mother client can still get the $4,000 EIC because it doesn't matter who in the household earns lots more money. Then my client tells me that she and boyfriend are planning to get married. Uh oh! With a combined income of $54,000 they would not qualify for the EIC. Zaap goes the $4,000 just by saying "I do." I advise my client not to get married.
Why would I give my client such advice? You would probably think that it would go against my political philosophy. Well, I have to act in the best interests of my client. That comes first in my professional life.
Suppose a single mom with two kids living with boyfriend doesn't have the ability to work. Well, she gets advice to come up with a bogus home business. It just so happens that she comes to me for the tax return and whatta you know, she has earned $14,000 from her home business. Strangely enough she doesn't have any expenses for this business. I emplore her to come up with some expenses to reduce the income to pay less tax. She keeps insisting that she has no expenses. She knows the rules of the game. She qualifies for the $4,000 EIC. This is a big red flag for us tax preparers. Most of the time people cheat by claiming less income than they earn or more expenses than they incurred. But, claiming income you didn't earn to qualify for the EIC is also tax fraud. What do I do? First you should know that low income people are not my target market. It is too much work for too little pay. H&R Blank can do a fine job for these people. I will politely tell her that I can't help her and direct her to the closest H&R Block office.

The Duck Won

Thanks to all of those who called or wrote to their Congressperson, the illegal alien amnesty bill died in the Senate last week. This bill was wrong from the start and it was mostly predicted that it would fail. Nevertheless, the conservative talk radio circuit was credited with a large influence in getting this wrong-headed legislation squashed. By the way, there is no real liberal talk radio circuit. Why? Because nobody listens to that garbage. It's all about making money folks. If it don't sell it ain't gonna be offered.

It is understandable why the liberals want amnesty for illegals. They see large cadres of future voters. But, it boggles my mind when some conservatives including the sitting President are in favor of this amnesty. I understand that they want cheap labor for their business owner constituency. But, are they really thinking ahead to all those future liberal voters?

The answer to illegal immigration is simple. First, enforce the 1986 law by fining and jailing employers who hire illegals. And, don't tell me that employers can't determine who is illegal. All they have to do is sign up with the Social Security Administration and then go online to verify the last name of employees against SSN's. This enforcement will cause hundreds of thousands of illegals to self-deport. Once the word gets back to the homeland the flood of new illegals will dry up. Next, carry out the law passed last October and build the double fence from California into Texas. Lastly, amend the constitute to stop the automatic citizenship for anchor babies dropped into this country by illegals.

One more thing. I have heard several liberals say that the illegals pay taxes. This is simply not true. Firstly, a lot of illegals work in the underground market, get paid in cash and never have taxes withheld. Then most of those that have either stolen a Social Security Number from a dead person or obtained a TIN and have taxes withheld are getting the withholding refunded and if their income is between $10,000 and $19,000 and they have two children, they get a $4,000 Earned Income Credit from the Federal coffers. So, not only are these individuals not paying taxes, they get a check for $4,000 from the taxes that you pay.

My last question. When are you going to get angry enough about all this to vote these liberals out of office?

El Mirage Dry lake Bed

My friend Ray invited me to join him and his son at El Mirage dry lake bed and OHV area. This is in the high desert north and east of Los Angeles. The elevation is about 4,000 feet but it is the desert so the daytime temperatures were about 95. Saturday evening was cool for excellent sleeping in Ray's motor home. I did a few excursions on one of Ray's dirt bikes. Also in the group was Greg Smith and Ray Reibling from NDT Systems where I worked back in the early 90's. I helped get my friend Ray (Bowman) a job there. So, Greg and I did an excursion on a couple of ATVs. No pics of the ATVs but we did some steep hill climbing that was lots of fun. Click on pictures to enlarge.

Dry lake in background