Schedule C Maximum Deferral of tax line 18

[Brainstrom]

There seems to be a new question for the Schedule C section this year due to the covid. Part 3 line 18 want you to input a number??? How did the covid effect your business from March 2020 through December 2020 for self employment, what is the calculation for this input?

[athaureaux6]

Hi Brainstorm, 

This is a new tax deferral (temporarily) of the part of the SE tax corresponding to the part of the Social Security portion. Many tax professionals are cautious about this because it will have to be paid in 2021 and 2022 and it could cause a higher tax burden for many taxpayers. Just be cautious, it may reduce your tax  this year but it can increase your taxes in the near future. But you are right, the software will ask you, I and many professionals I have spoken to, will enter 0 on Line 18 so nothing will change. Hope this helps. 

[athaureaux6]

Also you will have to take the net income profit and you will allocate the part corresponding to March 27 to December 31. For example, if you have a net profit of 5000 , you divide that by 365 days you will get around 14 dollars per day, so from March 27 to december 31, there are approximately 288 days times 14 you will enter 3945. The software will calculate the rest. As I said before, be cautious with this deferral unless the taxpayer agrees and understand it. Hope you understand. I did my best. 

[qbteachmt]

"to be a new question for the Schedule C"

To clarify, then; this is on the Sched SE.

[abctax55]

@athaureaux6 

It doesn't impact/change any tax liability.

It is strictly a cash flow management opportunity.  It *may* reduce underpayment penalties;  I haven't had a chance to check (but I doubt it..)

[rbynaker]

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@Brainstrom wrote:

There seems to be a new question for the Schedule C section this year due to the covid. Part 3 line 18 want you to input a number??? How did the covid effect your business from March 2020 through December 2020 for self employment, what is the calculation for this input?

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The draft instructions to Schedule SE indicate that you can use "any reasonable method" including prorating the income by the number of days before/after 3/27/20.

https://www.irs.gov/pub/irs-dft/i1040sse--dft.pdf

So 76.503% unless you really want to do a lot more work to figure the interest-free loan.  I plan to generally discourage this but there may be a few clients who will want to do it anyway.

[rbynaker]

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@abctax55 wrote:

It is strictly a cash flow management opportunity.  It *may* reduce underpayment penalties;  I haven't had a chance to check (but I doubt it..)

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I think this could impact the 2210 calculation.  Looking at the draft instructions for Line 3 it does make an adjustment for "Deferral for certain Schedule H or SE filers".

https://www.irs.gov/pub/irs-dft/i2210--dft.pdf

Rick

[abctax55]

@rbynaker -  Logically, I could see it go either way (not that it matters 🙂

I'll eventually give one a test drive to see how/if it factors in.  It could save a few clients penalties.

[jacquemcm]

So there is no where to "check a box" to opt out of the social security tax deferral?  You just enter in 0 for the allocation?

[athaureaux6]

I think so. I looked for that but I did not find and I input a 0 and it did not change any calculation. That is why I am planning to do that after I explain the self employed people about this new tax deferral tool. 

Have a great day.  

[qbteachmt]

"after I explain the self employed people about this new tax deferral tool."

Just like the employees whose employer forced them to defer SS and now their paychecks will take a double-hit for the collection of the deferral along with their current amounts owed. And that's if the employer still has the same people employed, or has anyone employed, and/or can even collect what is owed from last year. And then they need to issue amended/corrected/updated W2 for 2020. What fun.

[Pink_Floyd]

Explained to the T. I filed earlier today and entered 0 because I did not want any discrepancies over my taxes. I'll pay what I need when I need to pay it, (I sleep better when I don't owe anything to anyone). But I wanted to double check and that's what I needed to hear, thank you! 🙃

[Accountant-Man]

There is no part 3 line 18 on Schedule C. YOU MEAN SCHEDULE SE.

[Tj2021]

This is my exact question the system wouldn’t let me get past it and I was afraid to enter any number in that box because I’ve found it difficult to retrieve it once you enter wrong info. It is the Schedule SE line 18. After 3 hours I’ve given up on what to put and what exactly it means . Comments on here were very helpful thank you ! 

[luithe3rd]

VERY HELPFUL,  THANK YOU!

[qbteachmt]

"Also you will have to take the net income profit and you will allocate the part corresponding to March 27 to December 31. For example, if you have a net profit of 5000 , you divide that by 365 days you will get around 14 dollars per day, so from March 27 to december 31, there are approximately 288 days times 14 you will enter 3945."

For reference:

Note:  The only days that may be taken into account in a taxable year in determining the qualified sick leave equivalent amount for the year are days occurring during the year and during the period beginning on April 1, 2020, and ending on March 31, 2021.

62. How is the “average daily self-employment income” for an eligible self-employed individual calculated? (Updated January 28, 2021)

Average daily self-employment income is an amount equal to the net earnings from self-employment for the taxable year, or prior taxable year, divided by 260.  A taxpayer’s net earnings from self-employment are based on the gross income that he or she derives from the taxpayer’s trade or business minus ordinary and necessary trade or business expenses.

From: https://www.irs.gov/newsroom/special-issues-for-employees

Half-way down, that topic has the SE info.

[CristalG]

Hi did you figure this out already? It give me the same issue but I was guided by a live person and they told me to enter 0 to help me pass this step. But now I am worried for my return to be Audited if this is a mistake I really hope my return is not affected because of this. 

[acctdept]

I did figure it out (put a zero on  the worksheet).  Hopefully it won't be an issue on IRS end.  Thanks for the reply.

[qbteachmt]

"But now I am worried for my return to be Audited"

@CristalG 

Did you mean to be posting to the TurboTax Community? Because this is a community of Professional tax preparers using ProSeries, which is a completely different program.

You seem to be lost on the internet.

You’ve come to a Peer User community for Intuit Tax Preparation products supporting tax preparation professionals using ProSeries, Proconnect and Lacerte , and you may be looking for support as an individual taxpayer. Please visit the TurboTax Help site for support.

Thanks.

[CristalG]

Thanks for letting me know. But I believe even the tax professionals seem to be having this issue I got help from 3 different live agents and none of them seem to know what to do with this issue! So how can an individual taxpayer get the proper support if the professionals are also confused.  

[qbteachmt]

"But I believe even the tax professionals seem to be having this issue"

You are confusing how to understand the regulation and how to use the program and you are in a forum for How To Use ProSeries.

If you really want to Help, go to the TurboTax Community and share with them what you learned.

[abctax55]

The "tax professionals" are NOT confused on it.   TurboTax agents are NOT tax professionals.

Perhaps you should consider hiring a tax professional? 

[qbteachmt]

"I got help from 3 different live agents"

But are those people TurboTax agents? Because this is not TurboTax. You are in the wrong place on the internet, if you are a TurboTax user.

[yanezam]

If you put Zero that will reduce the amount of the refund, if you allocate the amount from March to December line 26 will give you a figure(amount) I've had several clients call me to that there refund has been less than what proseries show's I asked what amount they got and it was minus the amount shown on line 26. Has anyone had the same issued? 

[Powerfultaxman]

This has happened twice to me so far. That’s why I’m here. 

[qbteachmt]

There are many reasons why a refund might be lower than expected. The IRS has the info.

https://www.irs.gov/refunds/tax-season-refund-frequently-asked-questions

"Why is my refund different than the amount on the tax return I filed? (updated 2/5/2021)

All or part of your refund, including any amount for the Recovery Rebate Credit, may have been used (offset) to pay off past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or other federal nontax debts, such as student loans. To find out if you may have an offset or if you have questions about an offset, contact the agency to which you owe the debt.

We also may have changed your refund amount because we made changes to your tax return. This may include corrections to any incorrect Recovery Rebate Credit amount. You’ll get a notice explaining the changes. Where’s My Refund? will reflect the reasons for the refund offset when it relates to a change in your tax return.

Tax Topic 203, Refund Offsets for Unpaid Child Support, Certain Federal and State Debts, and Unemplo... has more information about refund offsets."

Here's the reason it would be reduced in reference to SE deferral. That's not a Creditable Refund; it's a deferral for something not yet paid, so it isn't also considered past due.

It's part of parity for the Self-employed to be treated as employers are treated for the Form 7200 provision.

"Employers that have already deposited all or any portion of the employer's share of Social Security tax during the payroll tax deferral period may not subsequently defer payment of the tax already deposited and generate an overpayment of tax"

"Employers that have already paid the employer's share of Social Security tax on wages during the payroll tax deferral period may not subsequently defer the payment of the tax"

Remember that SE = both an employer and an employee for purposes of the Social Security tax.