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Self-Employment Taxes vs. Energy Credit

DeveraC
Level 3

Hi, all. I have a cranky client who doesn't believe me when I tell him that his $26K solar energy credit is not allowed to reduce his self-employment taxes. He had a federal tax liability of $1851 (which is now zero due to his solar energy credit.) However, he has a self-employed business and his SSA/MC taxes on that are around $2600 and since his federal liability is zero after the credit, he still owes the SSA/MC on his return. I have tried to explain to him that self-employed taxes don't work the same way federal taxes work. Can anyone help me find in the regs where it states this? I've tried to explain to him that it is a non-refundable credit that can be carried to future years, but he won't accept it. He said his contractor (who installed the solar panels) and his financial advisor both said it should wipe out his liability. 

 

OR.... am I completely missing something on the 5695??? Good grief. This tax season has been a nightmare. 

1 Solution

Accepted Solutions
Accountant-Man
Level 11

SE taxes are payroll taxes, and not income taxes. An energy credit is an income tax credit, not a payroll tax credit.

Unless the solar company is a CPA firm or EA firm, don't get tax advice from solar installers. 

And most financial advisors print a caveat: "See your tax advisor for tax advice."

** I'm still a champion... of the world! Even without The Lounge.

View solution in original post

12 Replies 12
Accountant-Man
Level 11

SE taxes are payroll taxes, and not income taxes. An energy credit is an income tax credit, not a payroll tax credit.

Unless the solar company is a CPA firm or EA firm, don't get tax advice from solar installers. 

And most financial advisors print a caveat: "See your tax advisor for tax advice."

** I'm still a champion... of the world! Even without The Lounge.

View solution in original post

DeveraC
Level 3

Thank you. My tax season brain good not put my thoughts to words to explain it to him. 

Just-Lisa-Now-
Level 15
Level 15
Some people may understand it better mechanically, on the tax return, to see where the credit comes in and where the SE taxes come in below the credit.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
jeffmcpa2010
Level 8

I would explain it like this.

"Despite our longstanding relationship, you clearly no longer have the requisite level of trust and respect for my knowledge, learning and abilities.

This package contains all your original documents which you have provided me. I wish you well with your new tax practitioner."

dkh
Level 11

@jeffmcpa2010     I've struggled for the correct wording to use with clients like @DeveraC is experiencing.    I'm going to print your statement for future reference.  Thank you.

BobKamman
Level 13

@jeffmcpa2010 

I would explain it like this:

  STFU

dkh
Level 11

I liked Jeff's message for clients  but I LOVE @BobKamman 's  -   will have to save that for the day I want to go out of business though

TAXOH
Level 10
Level 10

Tell him to have the contractor or financial advisor prepare his taxes.

BobKamman
Level 13

Tell him to get it in writing from the contractor and financial adviser because your lawyer needs it for a defamation case.  

Accountant-Man
Level 11

When another client asks how to deduct improvements to his home, LIKE HIS NEIGHBORS DO, I always ask him, "Where do they deduct it?"

I NEVER get a response after that.

** I'm still a champion... of the world! Even without The Lounge.
BobKamman
Level 13

I just offer to help them file a Form 211

The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.

https://www.irs.gov/compliance/whistleblower-informant-award 

IRonMaN
Level 15

Most tax seasons, I would approach it like @jeffmcpa2010.  On April 6, 2021, I would tend to go with the first post by @BobKamman 

Barber! Why didn't I think of this before? Getting paid to give out bad tax advice - need I say more? I've run with scissors for years so it is a natural fit.