Sole propietors and ITC

[Dave1478]

Hello,

So I have a friend who went solar who didn't understand the tax credit and since he runs his own one man business ( remodeling), he basically pays no taxes with all his write offs so is their anyway he can spin this to his advantage somehow? Possibly boosting reported income to help with social security wages later on down the road? As he won't have any taxes with 13k credit hanging over him for a long time.

Being a sole proprietor though I would think that would actually just cost him more money as he pays the self employment tax....but possibly the boosted income and more put into social security pay off later?

That's the only thing I can think of that would be of any possible financial gain, anyone else have some ideas?

[cebury]

Yeah that SE tax will cause a hit. I don't think anyone here is going to recommend falsifying wage/income in order to capture the ITC deduction. That's the epitome of the expression cut off your nose to spite your face. The Net benefit of increasing your SSI benefits down the road isnt attractive IMO, esp. when SSI is not fully funded in the next 15 years. Is he retiring soon? You can go online and see your current expected monthly and put in the extra income to calculate it. Perhaps another way to present it is to shift the boy/eoy income into same year to maximize profit in every other year. There are legals ways to do that. But faking income is just giving away the deduction with the only benefit being the SSI.

I know when the business is small, you are turning over every rock looking for deductions, trying to avoid paying income taxes. But if his business never ends up making profit and paying taxes, he might consider another line of income . I don't believe the IRS has stopped allowing the carrying forward of noncaptured 5695 Residential Energy Efficiency. He'll likely have at minimum until 2021, but possibly as long as needed (depends if the IRS changes the rules), to capture the 30%.

Sorry, I don't have any other ideas than yours.

[sensij]

I don't believe the IRS has stopped allowing the carrying forward of noncaptured 5695 Residential Energy Efficiency. He'll likely have at minimum until 2021, but possibly as long as needed (depends if the IRS changes the rules), to capture the 30%.

I'm not sure it applies to this situation, but if the tax credit was claimed for a commercial system on form 3468, 26 U.S. Code Section 39 says it can be carried forward for 20 years. After that, half the remaining carryforward can be deducted, and the rest expires.

[organic farmer]

I operate a few small 'Sole Proprietor' business activities [Schedule Cs, Es and Fs].

I keep my declared profits low, often in the negative, to maintain a low AGI. As a result I do not pay into Income Taxation. I have not paid into Income Taxation since 1983.

We have never cheated on our tax filings, we have been meticulous in making sure that we have never violated any tax code / law. I do not see anything in the OP to imply that anyone was 'cheating' or in violation of tax code.

We have had the availability of using the tax credit against our taxes, alas we have not done so. Because we have not had a tax obligation anyway.

What our accountant has suggested has been that we adjust our business model, to show some more profit, and then to depreciate our solar system for the next 7 years. So while we have not used the tax credit, we may instead use the depreciation.

[cebury]

Dave1478, are you still around or subscribed to this thread?

[cebury]

In case you are or for others who lurk, see https://www.solarpaneltalk.com/forum...employment-tax

There are some "quirks" about claiming the ITC credit. Last year I discovered and confirmed the deduction will NOT offset self-employment income. If he owns a sole proprietorship he may discover he can't get the federal 30% without W2 income. I did not find this in the legislation section that discusse the ITC. But Turbotax, HR block, and our commercial-tax filing software for CPA firms also accounts for W2 income only.

There is also another quirk about limits on federal credits having to do with hardship deductions on other parts of the tax filing, like watch out if you get the child care credit limiting your ITC this year.