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Why did adding a License Expense for my business cause my refund to decrease?

Forum|Forum|5 years ago
April 12, 2021
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I was entering expenses for my Minnesota business and after adding a license expense, my Federal Tax refund increased however my state refund decreased. I removed the expense, and the state and federal returns returned to their amounts prior to the change. Is this a bug, or what am I missing?

Best answer by HelenC12

Strangely enough, an income decrease can sometimes reduce your refund. One example is reducing or losing the Earned Income Credit (EIC) . Your earned income goes down every time you enter a business expense. Your EIC is based on your earned income (gross income less expenses), so as your income goes down, so does your refund.

Note: Per IRS: You are required to enter all of your income and expenses. It is illegal to omit legitimate expenses that reduce your income so as to maximize your refund.

Related Information:

H

HelenC12Answer

Strangely enough, an income decrease can sometimes reduce your refund. One example is reducing or losing the Earned Income Credit (EIC) . Your earned income goes down every time you enter a business expense. Your EIC is based on your earned income (gross income less expenses), so as your income goes down, so does your refund.

Note: Per IRS: You are required to enter all of your income and expenses. It is illegal to omit legitimate expenses that reduce your income so as to maximize your refund.

Related Information:

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R

roalklAuthor

That might be very well what is going on. I moved the cost to another column just to make sure it was not a bug, and sure enough my state return still was reduced by $20. I should have thought to try that before asking my question. The small amount in an area I do not use yearly felt like a possible area for a bug.

Thank you for your help!

Note: I have full intent of putting all of my income and expenses in my return.