Do you get a bigger refund for higher expences?

Question

ok, so I have been filing my taxes through H&R block the last few years. I previously owned my own company. I now have a few different business, but I know nothing about taxes. I was told to always keep ALL my receipts.

Do I get a bigger refund for reporting all my expences? or does that make my earned income credit lower?

I read that I will have to pay less in, but will it make my refund less? I usually dont pay much in, I have it taken out of my refund. but if I am reporting a earned income of $16,000 and I report $5000 in expences, then wont that make my income $11000 and my income credit less?

Answer 1

Caution: Pub 596 states you must claim all your business expenses if you are self employed and claiming the EIC.

Other wise you would not be required to report all you business expenses but if you do your tax will be lower.

Answer 2

If you are self employed your expenses reduce the income subject to tax. So do your deductions (itemized or standard) and your exemptions.

Business expenses lower taxable income and therefore your tax liability. And they reduce the income used to figure the EIC. That could either raise or lower your EIC; it depends upon where you are on the scale.

Any refund depends upon how much you've paid in and what your tax liability is. If you over pay, you get that back. If you underpay, then you owe when you file.

By the way, the IRS looks at returns claiming self-employment income and the EIC very closely. They will force you to take proper business expense deductions if it appears that you ignored the expense in order to drive up your EIC. Getting caught out in EIC fraud -- and underclaiming expenses to drive up the credit IS fraud -- will get you barred from EIC claims for 10 years.

Answer 3

Refunds have nothing to do with expenses. You get a bigger refund if you have too much withheld from your paycheck. With a large refund, you are lending your money to the government for free. If you want to keep more of your money, adjust your withholding allowances. See IRS Publication 919 and complete the worksheets so you don't have too much withheld.

http://www.irs.gov/pub/irs-pdf/p919.pdf