Question

Small business calculations give me a refund on income but not if I add business expenses

Forum|Forum|4 years ago
March 27, 2022
2 replies
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I have a small home business. When I start a new return and go to the business section I enter the general income of $455. The federal and state refunds show I will be receiving a total refund of $253.00. At this point the only number I have entered into the system is the $455 and I already receive a refund on income. If I add one business expense in the amount of $252, my total state and federal refund change to $167. If I add a second business expense of $938, the total state and federal refund show as $0. If I continue to add business expenses, the state and federal refund always stay at $0.

Is this right?

I would think that when I enter the income, I should not be receiving a refund but instead owe money. Then as I add expenses that exceed the income, my business losses (some) should show as a refund rather than stay at $0.

I am using TurboTax Home and Business 2021.

KrisD15

Might be due to

Qualified Business Income Deduction. The higher the income the higher the deduction

Earned Income Credit. The lower income (because of the expenses) might generate a lower Earned Income Credit.

Dependent Care Credit is also based on income and may be reduced or eliminated with lower income.

Lower income does not necessarily increase refunds, it only lowers your tax liability.

Once your tax liability zeros out, only credits can increase your refund.

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VolvoGirl

Employee

One reason, By increasing your deductions and expenses it will decease your income and you may not be getting as many credits as before like the EIC credit. You can't go by the refund monitor until you have entered everything in. Also after you reduce your income to zero there is no more refund to get back. But even though your taxable income goes down and you owe less income tax on it, you still owe SE Self Employment tax if you have a Net Profit.