Can I avoid disqualifying myself from EITC by reducing investment income below threshold?
So I just realized I've completely screwed myself over with my EITC eligibility this year. I've already got about $13.5k in interest and dividends recorded for the year, with another $3.8k expected to post in December. I just found out the investment income limit for claiming the Earned Income Tax Credit is $11,000 for 2023, and I'm way over that threshold. I stand to lose around $2,800 in EITC by having this much investment income. I've gone through my taxable accounts and unfortunately don't have any investments showing losses that I could harvest to offset some of this income. Is there anything I can do in the next few weeks to get under the $11,000 investment income threshold? Or am I just out of luck for this tax year? I'm kicking myself for not being more careful about what investments I put in my taxable accounts versus retirement accounts.
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Declan Ramirez
The investment income limit for EITC is indeed $11,000 for 2023 tax filings, and unfortunately there aren't many options for reducing investment income that's already been distributed to you. The IRS counts interest, dividends, capital gains, and other passive income toward this threshold. One thing to check is if any of your investments allow for dividend reinvestment. While this doesn't eliminate the tax liability, it might help for future years' planning. Also, you might want to review if you have any deductible investment expenses that could offset some income, though these are limited since the 2018 tax law changes. For next year, consider tax-advantaged accounts like IRAs and 401(k)s for investments that generate significant dividends and interest. Municipal bonds might also be worth exploring since their interest is typically exempt from federal income tax and wouldn't count toward the EITC investment income limit.
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Emma Morales
•What about making charitable donations of some dividend-producing stocks before year end? Could that help lower the investment income for EITC purposes? And does the EITC income limit include tax-exempt interest from municipal bonds or just taxable interest?
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Declan Ramirez
•Donating dividend-producing stocks to charity is a good strategy for reducing future investment income, but it won't eliminate the dividends you've already received this year. The donation itself would be a deduction on Schedule A if you itemize, but wouldn't directly reduce investment income for EITC purposes. The EITC investment income limit does include tax-exempt interest from municipal bonds. Even though that interest isn't subject to federal income tax, it still counts toward the investment income threshold for EITC eligibility. The IRS considers all interest, taxable or not, when calculating your investment income for the EITC.
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Katherine Hunter
I was in a similar spot last year and found taxr.ai super helpful for figuring out my EITC situation with investment income. They analyzed all my accounts and spotted that some of my dividend income was actually return of capital which doesn't count toward the EITC limit. Saved me almost $3k in tax credits! Their system checks all your tax docs and transcripts to find things human eyes miss. Might be worth checking out at https://taxr.ai to see if there's anything in your situation they can identify to help get below that threshold.
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Lucas Parker
•How exactly does taxr.ai work? Do you upload all your tax documents and they analyze them? I'm getting close to the EITC investment income limit myself and wondering if this could help me too.
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Donna Cline
•I'm skeptical about these tax services that claim to find magical solutions. Did they actually show you specifically what was miscategorized or did they just give you a general report? And can they really do anything that a regular tax professional couldn't do?
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Katherine Hunter
•You upload your tax documents and they use their system to analyze everything line by line. Their software is specifically designed to catch classification issues like return of capital vs. dividend income that can make a big difference for specific credits like the EITC. They provided a detailed breakdown showing exactly which distributions from my investments were return of capital rather than dividends, with references to the specific tax codes and IRS publications. Unlike a regular tax professional who might just take the 1099 numbers at face value, their system cross-references everything against database information for those specific investments and identifies discrepancies.
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Lucas Parker
I tried taxr.ai after seeing the recommendation here and just got my results back. Turns out about $2,400 of what my brokerage reported as dividend income was actually return of capital from some of my ETF investments! This won't count toward the $11,000 EITC investment income limit. They showed exactly which distributions weren't properly classified and provided documentation I can use if I get questioned. This literally saved my EITC eligibility - that's a $3,200 tax credit I would have lost otherwise. The detailed report explained everything in terms even I could understand about why these shouldn't count as investment income for EITC purposes.
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Harper Collins
If you're having trouble getting through to the IRS to ask about your specific EITC situation, try Claimyr. I spent days trying to reach someone at the IRS about my investment income questions last year, but their lines were always busy. Found Claimyr at https://claimyr.com and watched their demo video at https://youtu.be/_kiP6q8DX5c - they got me connected to an actual IRS agent within 20 minutes when I had been trying for weeks on my own. The agent clarified exactly what counts toward that investment income threshold and gave me options I hadn't considered.
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Kelsey Hawkins
•How does Claimyr actually work? Do they somehow bypass the IRS phone system? I've been trying to get through about a different tax credit issue for ages.
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Donna Cline
•I'm really doubtful this actually works. The IRS phone system is notoriously impenetrable. What's their secret sauce? And even if you do get through, the agents often give contradictory information depending on who you talk to. I wasted so much time last year with incorrect information.
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Harper Collins
•Claimyr uses an automated system that navigates the IRS phone tree and holds your place in line. When they reach an agent, you get a call to connect directly with that person. It's not bypassing anything - they're just handling the waiting and navigation for you. The real value is actually getting through to discuss your specific situation. You're right that IRS agents sometimes give different answers, which is why I made sure to take notes and get the agent's ID number. Having direct clarification from the IRS about my specific investment income situation saved me from making a costly mistake on my return.
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Donna Cline
Well I have to eat crow on this one. After being skeptical about Claimyr, I tried it yesterday out of desperation since I'm in a similar EITC situation. Got connected to an IRS tax specialist in about 30 minutes who actually knew about the investment income limits for EITC. She explained that certain qualified business income distributions from my S-corp might not count toward the investment income threshold. She also confirmed exactly which line items on my return would be counted toward that $11,000 limit. Definitely worth it just for the peace of mind knowing exactly where I stand instead of guessing.
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Donna Cline
Well I have to eat crow on this one. After being skeptical about
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Dylan Fisher
Have you looked into whether any of your investments qualify as "working capital" rather than investment income? There are some exceptions for certain business investments that might not count toward the EITC threshold. Also check if any of your dividends are qualified vs non-qualified, as this might affect how they're counted.
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Edwards Hugo
•Can you explain more about this "working capital" exception? Never heard of that for EITC purposes. Is there an IRS publication that covers this?
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Dylan Fisher
•I should clarify that the working capital distinction typically applies to self-employment and business scenarios rather than personal investments. It's more relevant if you have an ownership interest in a business where some of the capital is considered working capital. Unfortunately, the qualified vs. non-qualified dividend distinction doesn't help with the EITC investment income threshold - both types count toward the limit. I was thinking of a different tax situation. The IRS Publication 596 covers EITC in detail and specifies what counts as investment income for this purpose.
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Gianna Scott
Has anyone considered tax-loss harvesting on cryptocurrency investments? If you have any crypto that's down this year, selling at a loss could potentially offset some investment income. The wash sale rule doesn't currently apply to crypto (although this might change), so you could sell and rebuy immediately.
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Alfredo Lugo
•This is actually a smart suggestion, but be careful. Even though wash sale rules don't technically apply to crypto yet, the IRS is increasingly scrutinizing these transactions. But if you have genuine crypto losses, this could help offset some investment income.
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Sydney Torres
Check if any of your dividend income is from foreign sources. If so, you might be able to claim the foreign tax credit, which while it doesn't reduce your investment income, could help offset some of the tax impact from losing the EITC. Also worth checking if any of your investments made return of capital distributions that might have been misclassified as dividends on your statements.
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