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1040 com Index A Active participation, Active participation. 1040 com Activity Appropriate economic unit, Appropriate Economic Units Nonpassive, Activities That Are Not Passive Activities Trade or business, Passive Activities Amounts borrowed, Amounts borrowed. 1040 com Amounts not at risk, Amounts Not At Risk, Other loss limiting arrangements. 1040 com Appropriate economic unit, Appropriate Economic Units Assistance (see Tax help) At-risk activities Aggregation of, Aggregation of Activities Separation of, Separation of Activities At-risk amounts, At-Risk Amounts Government price support programs, Effect of government price support programs. 1040 com Increasing amounts, Effect of increasing amounts at risk in subsequent years. 1040 com Nonrecourse financing, Nonrecourse financing. 1040 com At-risk limits, At-Risk Limits Closely held corporation, Closely held C corporation. 1040 com Loss defined, Loss defined. 1040 com Partners, Loss limits for partners and S corporation shareholders. 1040 com S corporation shareholders, Loss limits for partners and S corporation shareholders. 1040 com Who is affected, Who Is Affected? At-risk rules Activities covered by, Activities Covered by the At-Risk Rules Exceptions to, Exception for holding real property placed in service before 1987. 1040 com Excluded business, Qualifying business. 1040 com Qualified corporation, Qualified corporation. 1040 com Qualifying business, Qualifying business. 1040 com Recapture rule, Recapture Rule B Borrowed amounts, Amounts borrowed. 1040 com C Closely held corporation, Closely held C corporation. 1040 com Commercial revitalization deduction, Commercial revitalization deduction (CRD). 1040 com Corporations Closely held, Corporations. 1040 com , Corporations. 1040 com Controlled group of, Controlled group of corporations. 1040 com Personal service, Corporations. 1040 com , Corporations. 1040 com Qualified, Qualified corporation. 1040 com CRD, Commercial revitalization deduction (CRD). 1040 com D Deductions, passive activity, Passive Activity Deductions Disabled farmer, Retired or disabled farmer and surviving spouse of a farmer. 1040 com Disclosure requirement, Appropriate Economic Units Dispositions Death, Dispositions by death. 1040 com Gift, Dispositions by gift. 1040 com Installment sale, Installment sale of an entire interest. 1040 com Partial, Partial dispositions. 1040 com E Excluded business, definition of, Qualifying business. 1040 com F Farm loss, Excess Farm Loss Farmer, Retired or disabled farmer and surviving spouse of a farmer. 1040 com Form 6198, Form 6198. 1040 com 8582, Step Three—Completing Form 8582 8810, Who Must Use These Rules? Former passive activity, Treatment of former passive activities. 1040 com Free tax services, Free help with your tax return. 1040 com G Grouping passive activities, Grouping Your Activities H Help (see Tax help) I Income, passive activity, Passive Activity Income L Limited entrepreneur, Limited entrepreneur. 1040 com Limited partners, Limited partners. 1040 com M Material participation, Material Participation, Corporations. 1040 com Modified adjusted gross income, Phaseout rule. 1040 com N Nonrecourse loan, Nonrecourse financing. 1040 com P Participation, Participation. 1040 com Active, Active participation. 1040 com Material, Material Participation Passive activity, Passive Activity Limits Comprehensive example, How To Report Your Passive Activity Loss Disposition, Dispositions Former, Treatment of former passive activities. 1040 com Grouping, Grouping Your Activities Limits, Passive Activity Limits Material participation, Material Participation Rental, Rental Activities Rules, Passive Activities, Grouping Your Activities Who must use these rules, Who Must Use These Rules? Passive activity deductions, Passive Activity Deductions Passive activity income, Passive Activity Income Passive income, recharacterization of, Recharacterization of Passive Income Publications (see Tax help) Publicly traded partnership, Publicly Traded Partnership, Publicly traded partnership (PTP). 1040 com Q Qualified person, nonrecourse financing, Qualified person. 1040 com Qualifying business, at-risk rules, Qualifying business. 1040 com R Real estate professional, Real Estate Professional Recapture rule under at-risk limits, Recapture Rule Recharacterization of passive income, Recharacterization of Passive Income Reductions of amounts at risk, Reductions of Amounts At Risk Related persons, Related persons. 1040 com Rental activity $25,000 offset, Special $25,000 allowance. 1040 com Active participation, Active participation. 1040 com Exceptions, Exceptions. 1040 com Phaseout rule, Phaseout rule. 1040 com Real estate professional, Real Estate Professional Retired farmer, Retired or disabled farmer and surviving spouse of a farmer. 1040 com S Section 1245 property, Section 1245 property. 1040 com Self-charged interest, Self-charged interest. 1040 com Separate activity, Separation of Activities Significant participation passive activities, Significant Participation Passive Activities Special $25,000 allowance, Special $25,000 allowance. 1040 com Surviving spouse of farmer, Retired or disabled farmer and surviving spouse of a farmer. 1040 com T Tax help, How To Get Tax Help Trade or business activities Definition of, Trade or Business Activities Real property, Real property trades or businesses. 1040 com W Worksheet 1, Worksheet 1. 1040 com Worksheet 3, Worksheet 3. 1040 com Worksheet 4, Step Four—Completing Worksheet 4 Worksheet 5, Step Five—Completing Worksheet 5 Worksheet 6, Step Six—Using Worksheets 6 and 7 Worksheet 7, Step Six—Using Worksheets 6 and 7 Worksheet A, Worksheet A. 1040 com , Worksheet A. 1040 com Significant Participation Passive Activities Worksheet B, Worksheet B. 1040 com , Worksheet B. 1040 com Significant Participation Activities With Net Income Prev Up Home More Online Publications
In many states, consumers can choose their telephone and energy service provider. Contact your state utility commission to find out whether you have a choice. Some commissions will provide a list of service providers and advice on making a choice, and most state utility commissions will take any complaints you have concerning utility sales and service.
Starting Utility Service
When you move into a new home or apartment, you may also be required to have the utilities (electricity, gas, water, waste removal, and cable) turned on in your name. Your city or county government may handle some services, such as water, sewer, and garbage collection. If you live in an apartment or are leasing a house from a homeowner, the landlord may handle this for you, but that is not required. If you request service, provide as much advance notice to the utility company as you can, at least one week in advance of the date you need service to start. Also, if you are relocating, don’t forget to have service turned off at your old address. Each company may require you to pay a fee to start service. You may also be required to pay a deposit or allow the company to check your credit to establish service at your home. If any of these companies fails to meet its service requirements, file a complaint with the company; you may be able to get a refund of your installation fee. If that doesn’t work, contact your state’s utility commission.
Once you have established service, you should start receiving your bills at regular intervals, normally monthly or quarterly. Utility bills are based on the amount of energy or water you actually use. However, if you live in an apartment complex, the amount you pay for some utilities may be prorated or split, based on a mathematical formula, among all of the residents in your community, no matter how energy conscious you are. If the amount of energy varies by season, you may decide to sign up for a budget billing program. These programs allow you to smooth out your monthly payments by paying more in lighter-use months, so your bills are still manageable in months with heavier use. Contact your utility companies to sign up for these programs. To learn ways to save on your energy bill, check with Environmental Protection Agency.
In addition to your actual service, you may have other fees on your bill, such as administrative fees, public surcharges, or local taxes. Contact the service provider if you see charges you don’t understand or didn’t authorize, or if you have difficulty making timely payments.
If you have difficulty paying your bills, especially for electricity or gas, help is available. Contact the company to find out if it has a program in place to help consumers. Also, your state’s utility commission may sponsor a program to either reduce your bill or make your payments based on a set amount of your income each month. Programs like these from utility companies and local government are usually based on your income.
The 1040 Com
1040 com 12. 1040 com Self-Employment Tax Table of Contents What's New for 2013 What's New for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Why Pay Self-Employment Tax? How To Pay Self-Employment TaxReplacing a lost social security card. 1040 com Name change. 1040 com Penalty for underpayment of estimated tax. 1040 com Who Must Pay Self-Employment Tax?Limited partner. 1040 com Community property. 1040 com Figuring Self-Employment EarningsLandlord Participation in Farming Methods for Figuring Net EarningsRegular Method Farm Optional Method Nonfarm Optional Method Using Both Optional Methods Reporting Self-Employment Tax What's New for 2013 Tax rates. 1040 com For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. 1040 com 4% to 12. 1040 com 4%. 1040 com The Medicare part of the tax remains at 2. 1040 com 9%. 1040 com As a result, the self-employment tax is increased from 13. 1040 com 3% to 15. 1040 com 3%. 1040 com Additional Medicare Tax. 1040 com . 1040 com For tax years beginning in 2013, a 0. 1040 com 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. 1040 com Use Form 8959, Additional Medicare Tax, to figure this tax. 1040 com For more information, see the Instructions for Form 8959. 1040 com Maximum net earnings. 1040 com The maximum net self-employment earnings subject to the social security part (12. 1040 com 4%) of the self-employment tax increased to $113,700 for 2013. 1040 com There is no maximum limit on earnings subject to the Medicare part (2. 1040 com 9%). 1040 com What's New for 2014 Maximum net earnings. 1040 com The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. 1040 com Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. 1040 com It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. 1040 com You usually have to pay SE tax if you are self-employed. 1040 com You are usually self-employed if you operate your own farm on land you either own or rent. 1040 com You have to figure SE tax on Schedule SE (Form 1040). 1040 com Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. 1040 com See chapter 13 for information on employment taxes. 1040 com Self-employment tax rate. 1040 com For tax years beginning in 2013, the self-employment tax rate is 15. 1040 com 3%. 1040 com The rate consists of two parts: 12. 1040 com 4% for social security (old-age, survivors, and disability insurance) and 2. 1040 com 9% for Medicare (hospital insurance). 1040 com Topics - This chapter discusses: Why pay self-employment tax How to pay self-employment tax Who must pay self-employment tax Figuring self-employment earnings Landlord participation in farming Methods for figuring net earnings Reporting self-employment tax Useful Items - You may want to see: Publication 541 Partnerships Form (and Instructions) 1040 U. 1040 com S. 1040 com Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. 1040 com S. 1040 com Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 1040 com See chapter 16 for information about getting publications and forms. 1040 com Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. 1040 com Your payments of SE tax contribute to your coverage under the social security system. 1040 com Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. 1040 com How to become insured under social security. 1040 com You must be insured under the social security system before you begin receiving social security benefits. 1040 com You are insured if you have the required number of credits (also called quarters of coverage). 1040 com Earning credits in 2013. 1040 com You can earn a maximum of four credits per year. 1040 com For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. 1040 com You need $4,640 ($1,160 × 4) of combined wages and self-employment earnings subject to social security tax to earn four credits in 2013. 1040 com It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. 1040 com For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office or visit the SSA website at www. 1040 com socialsecurity. 1040 com gov. 1040 com Making false statements to get or to increase social security benefits may subject you to penalties. 1040 com The Social Security Administration (SSA) time limit for posting self-employment earnings. 1040 com Generally, the SSA will give you credit only for self-employment earnings reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. 1040 com If you file your tax return or report a change in your self-employment earnings after the SSA time limit for posting self-employment earnings, the SSA may change its records, but only to remove or reduce the amount. 1040 com The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. 1040 com How To Pay Self-Employment Tax To pay SE tax, you must have a social security number (SSN) or an individual taxpayer identification number (ITIN). 1040 com This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. 1040 com An ITIN does not entitle you to social security benefits. 1040 com Obtaining an ITIN does not change your immigration or employment status under U. 1040 com S. 1040 com law. 1040 com Obtaining a social security number. 1040 com If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. 1040 com The application is also available in Spanish. 1040 com You can get this form at any Social Security office or by calling 1-800-772-1213. 1040 com You can also download Form SS-5 from the Social Security Administration website at www. 1040 com socialsecurity. 1040 com gov. 1040 com If you have a social security number from the time you were an employee, you must use that number. 1040 com Do not apply for a new one. 1040 com Replacing a lost social security card. 1040 com If you have a number but lost your card, file Form SS-5. 1040 com You will get a new card showing your original number, not a new number. 1040 com Name change. 1040 com If your name has changed since you received your social security card, complete Form SS-5 to report a name change. 1040 com Obtaining an individual taxpayer identification number. 1040 com The IRS will issue you an ITIN, for tax use only, if you are a nonresident or resident alien and you do not have, and are not eligible to get, an SSN. 1040 com To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. 1040 com You can get this form by calling 1-800-829-3676. 1040 com For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. 1040 com Form W-7 and Publication 1915 are also available in Spanish. 1040 com You can also download Form W-7 from the IRS website at IRS. 1040 com gov. 1040 com Paying estimated tax. 1040 com Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. 1040 com You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. 1040 com Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. 1040 com However, if at least two-thirds of your gross income for 2013 or 2014 was from farming and you file your 2014 Form 1040 and pay all the tax due by March 2, 2015, you do not have to pay any estimated tax. 1040 com For more information about estimated tax for farmers, see chapter 15. 1040 com Penalty for underpayment of estimated tax. 1040 com You may have to pay a penalty if you do not pay enough estimated tax by its due date. 1040 com Who Must Pay Self-Employment Tax? You must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. 1040 com The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. 1040 com Aliens. 1040 com Generally, resident aliens must pay self-employment tax under the same rules that apply to U. 1040 com S. 1040 com citizens. 1040 com Nonresident aliens are not subject to self-employment tax. 1040 com However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. 1040 com S. 1040 com residents for self-employment tax purposes. 1040 com For more information on aliens, see Publication 519, U. 1040 com S. 1040 com Tax Guide for Aliens. 1040 com Are you self-employed? You are self-employed if you carry on a trade or business (such as running a farm) as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. 1040 com A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. 1040 com Share farmer. 1040 com You are a self-employed farmer under an income-sharing arrangement if both the following apply. 1040 com You produce a crop or raise livestock on land belonging to another person. 1040 com Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. 1040 com Your net farm profit or loss from the income-sharing arrangement is reported on Schedule F (Form 1040) and included in your self-employment earnings. 1040 com If you produce a crop or livestock on land belonging to another person and are to receive a specified rate of pay, a fixed sum of money, or a fixed quantity of the crop or livestock, and not a share of the crop or livestock or their proceeds, you may be either self-employed or an employee of the landowner. 1040 com This will depend on whether the landowner has the right to direct or control your performance of services. 1040 com Example. 1040 com A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. 1040 com Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. 1040 com The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. 1040 com The share farmer is provided a house in which to live. 1040 com The landowner and the share farmer decide on a cropping plan. 1040 com The share farmer is a self-employed farmer for purposes of the agreement to produce the crops, and the share farmer's part of the profit or loss from the crops is reported on Schedule F (Form 1040) and included in self-employment earnings. 1040 com The tax treatment of the landowner is discussed later under Landlord Participation in Farming. 1040 com Contract farming. 1040 com Under typical contract farming arrangements, the grower receives a fixed payment per unit of crops or finished livestock delivered to the processor or packing company. 1040 com Since the grower typically furnishes labor and bears some production risk, the payments are reported on Schedule F and are therefore subject to self-employment tax. 1040 com 4-H Club or FFA project. 1040 com If an individual participates in a 4-H Club or Future Farmers of America (FFA) project, any net income received from sales or prizes related to the project may be subject to income tax. 1040 com Report the net income as “Other income” on line 21 of Form 1040. 1040 com If necessary, attach a statement showing the gross income and expenses. 1040 com The net income may not be subject to SE tax if the project is primarily for educational purposes and not for profit, and is completed by the individual under the rules and economic restrictions of the sponsoring 4-H or FFA organization. 1040 com Such a project is generally not considered a trade or business. 1040 com Partners in a partnership. 1040 com Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. 1040 com Limited partner. 1040 com If you are a limited partner, your partnership income is generally not subject to SE tax. 1040 com However, guaranteed payments you receive for services you perform for the partnership are subject to SE tax and should be reported to you in box 14 of your Schedule K-1 (Form 1065). 1040 com Business Owned and Operated by Spouses. 1040 com If you and your spouse jointly own and operate a farm as an unincorporated business and share in the profits and losses, you are partners in a partnership whether or not you have a formal partnership agreement. 1040 com You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. 1040 com Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. 1040 com Qualified joint venture. 1040 com If you and your spouse each materially participate as the only members of a jointly owned and operated farm, and you file a joint tax return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. 1040 com For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. 1040 com To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. 1040 com Each of you must file a separate Schedule F and a separate Schedule SE. 1040 com For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). 1040 com Spouse employee. 1040 com If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. 1040 com For more information about employment taxes, see chapter 13. 1040 com Community property. 1040 com If you are a partner and your distributive share of any income or loss from a trade or business carried on by the partnership is community property, treat your share as your self-employment earnings. 1040 com Do not treat any of your share as self-employment earnings of your spouse. 1040 com Figuring Self-Employment Earnings Farmer. 1040 com If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. 1040 com Partnership income or loss. 1040 com If you are a member of a partnership that carries on a trade or business, the partnership should report your self-employment earnings in box 14, code A, of your Schedule K-1 (Form 1065). 1040 com Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). 1040 com Use these amounts if you use the farm or nonfarm optional method to figure net earnings from self-employment (see Methods for Figuring Net Earnings , later). 1040 com If you are a general partner, you may need to reduce these reported earnings by amounts you claim as a section 179 deduction, unreimbursed partnership expenses, or depletion on oil and gas properties. 1040 com If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. 1040 com For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). 1040 com For general information on partnerships, see Publication 541. 1040 com More than one business. 1040 com If you have self-employment earnings from more than one trade, business, or profession, you generally must combine the net profit or loss from each to determine your total self-employment earnings. 1040 com A loss from one business reduces your profit from another business. 1040 com However, do not combine earnings from farm and nonfarm businesses if you are using one of the optional methods (discussed later) to figure net earnings. 1040 com Community property. 1040 com If any of the income from a farm or business, other than a partnership, is community property under state law, it is included in the self-employment earnings of the spouse carrying on the trade or business. 1040 com Lost income payments. 1040 com Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. 1040 com These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. 1040 com Even if you are not farming when you receive the payment, it is included in self-employment earnings if it relates to your farm business (even though it is temporarily inactive). 1040 com A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. 1040 com Gain or loss. 1040 com A gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers is not included in self-employment earnings. 1040 com It does not matter whether the disposition is a sale, exchange, or involuntary conversion. 1040 com For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. 1040 com Investment property. 1040 com Depreciable property or other fixed assets used in your trade or business. 1040 com Livestock held for draft, breeding, sport, or dairy purposes, and not held primarily for sale, regardless of how long the livestock was held, or whether it was raised or purchased. 1040 com Unharvested standing crops sold with land held more than 1 year. 1040 com Timber, coal, or iron ore held for more than 1 year if an economic interest was retained, such as a right to receive coal royalties. 1040 com A gain or loss from the cutting of timber is not included in self-employment earnings if the cutting is treated as a sale or exchange. 1040 com For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. 1040 com Wages and salaries. 1040 com Wages and salaries received for services performed as an employee and covered by social security or railroad retirement are not included in self-employment earnings. 1040 com Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. 1040 com Retired partner. 1040 com Retirement income received by a partner from his or her partnership under a written plan is not included in self-employment earnings if all the following apply. 1040 com The retired partner performs no services for the partnership during the year. 1040 com The retired partner is owed only the retirement payments. 1040 com The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. 1040 com The payments to the retired partner are lifelong periodic payments. 1040 com Conservation Reserve Program (CRP) payments. 1040 com Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a longterm contract with the USDA, agreeing to convert to a less intensive use of that cropland. 1040 com You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. 1040 com Cost share payments you receive may qualify for the costsharing exclusion. 1040 com See Cost-Sharing Exclusion (Improvements), above. 1040 com CRP payments are reported to you on Form 1099G. 1040 com Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. 1040 com See the instructions for Schedule SE (Form 1040). 1040 com Self-employed health insurance deduction. 1040 com You cannot deduct the self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings on Schedule SE (Form 1040). 1040 com Landlord Participation in Farming As a general rule, income and deductions from rentals and from personal property leased with real estate are not included in determining self-employment earnings. 1040 com However, income and deductions from farm rentals, including government commodity program payments received by a landowner who rents land, are included if the rental arrangement provides that the landowner will, and does, materially participate in the production or management of production of the farm products on the land. 1040 com Crop shares. 1040 com Rent paid in the form of crop shares is included in self-employment earnings for the year you sell, exchange, give away, or use the crop shares if you meet one of the four material participation tests (discussed next) at the time the crop shares are produced. 1040 com Feeding such crop shares to livestock is considered using them. 1040 com Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. 1040 com Material participation for landlords. 1040 com You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. 1040 com You do at least three of the following. 1040 com Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. 1040 com Furnish at least half the tools, equipment, and livestock used in the production activities. 1040 com Advise or consult with your tenant. 1040 com Inspect the production activities periodically. 1040 com You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. 1040 com You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. 1040 com You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. 1040 com These tests may be used as general guides for determining whether you are a material participant. 1040 com Example. 1040 com Drew Houston agrees to produce a crop on J. 1040 com Clarke's cotton farm, with each receiving half the proceeds. 1040 com Clarke advises Houston when to plant, spray, and pick the cotton. 1040 com During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. 1040 com Houston furnishes all labor needed to grow and harvest the crop. 1040 com The management decisions made by Clarke in connection with the care of the cotton crop and his regular inspection of the crop establish that he participates to a material degree in the cotton production operations. 1040 com The income Clarke receives from his cotton farm is included in his self-employment earnings. 1040 com Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. 1040 com The regular method. 1040 com The farm optional method. 1040 com The nonfarm optional method. 1040 com You must use the regular method unless you are eligible to use one or both of the optional methods. 1040 com See Figure 12-1 , shown later. 1040 com Figure 12-1. 1040 com Can I Use the Optional Methods? Please click here for the text description of the image. 1040 com Figure 12–1. 1040 com Can I Use the Optional Methods? Why use an optional method? You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. 1040 com You want to receive credit for social security benefit coverage. 1040 com You incurred child or dependent care expenses for which you could claim a credit. 1040 com (An optional method may increase your earned income, which could increase your credit. 1040 com ) You are entitled to the earned income credit. 1040 com (An optional method may increase your earned income, which could increase your credit. 1040 com ) You are entitled to the additional child tax credit. 1040 com (An optional method may increase your earned income, which could increase your credit. 1040 com ) Effects of using an optional method. 1040 com Using an optional method could increase your SE tax. 1040 com Paying more SE tax may result in you getting higher social security disability or retirement benefits. 1040 com If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller SE tax or no SE tax using the regular method. 1040 com The optional methods may be used only to figure your SE tax. 1040 com To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. 1040 com Regular Method Multiply your total self-employment earnings by 92. 1040 com 35% (. 1040 com 9235) to get your net earnings under the regular method. 1040 com See Short Schedule SE, line 4, or Long Schedule SE, line 4a. 1040 com Net earnings figured using the regular method are also called “actual net earnings. 1040 com ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. 1040 com You can use this method if you meet either of the following tests. 1040 com Your gross farm income is $6,960 or less. 1040 com Your net farm profits are less than $5,024. 1040 com Gross farm income. 1040 com Your gross farm income is the total of the amounts from: Schedule F (Form 1040), line 9, and Schedule K-1 (Form 1065), box 14, code B (from farm partnerships). 1040 com Net farm profits. 1040 com Net farm profits generally are the total of the amounts from: Schedule F (Form 1040), line 34, and Schedule K-1 (Form 1065), box 14, code A (from farm partnerships). 1040 com However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. 1040 com For more information, see Partnership income or loss , earlier. 1040 com Figuring farm net earnings. 1040 com If you meet either of the two tests explained above, use Table 12-1. 1040 com Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. 1040 com Table 12-1. 1040 com Figuring Farm Net Earnings IF your gross farm income is. 1040 com . 1040 com . 1040 com THEN your net earnings are equal to. 1040 com . 1040 com . 1040 com $6,960 or less Two-thirds of your gross farm income. 1040 com More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. 1040 com If your gross farm income is $6,960 or less and your farm net earnings figured under the farm optional method are less than your actual net earnings, you can use the farm optional method to reduce or eliminate your SE tax. 1040 com Your actual net earnings are your net earnings figured using the regular method, explained earlier. 1040 com Example. 1040 com Your gross farm income is $540 and your net farm profit is $460. 1040 com Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. 1040 com 35% of $460). 1040 com You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. 1040 com Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. 1040 com If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. 1040 com You can use this method even if you do not use the farm optional method for determining your farm net earnings and even if you have a net loss from your nonfarm business. 1040 com For more information about the nonfarm optional method, see Publication 334. 1040 com You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. 1040 com Using Both Optional Methods If you use both optional methods, you must add the net earnings figured under each method to arrive at your total net earnings from self-employment. 1040 com You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. 1040 com If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. 1040 com Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. 1040 com Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. 1040 com Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. 1040 com However, certain taxpayers must use Section B–Long Schedule SE. 1040 com Use the chart on page 1 of Schedule SE to find out which one to use. 1040 com If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. 1040 com Deduction for employer-equivalent portion of self-employment tax. 1040 com You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. 1040 com This deduction only affects your income tax. 1040 com It does not affect either your net earnings from self-employment or your SE tax. 1040 com To deduct the tax, enter on Form 1040, line 27, the amount shown on Section A, Line 6, or Section B, line 13, Deduction for employer-equivalent portion of self-employment tax, of the Schedule SE. 1040 com Joint return. 1040 com Even if you file a joint return, you cannot file a joint Schedule SE. 1040 com This is true whether one spouse or both spouses have self-employment earnings. 1040 com Your spouse is not considered self-employed just because you are. 1040 com If both of you have self-employment earnings, each of you must complete a separate Schedule SE. 1040 com However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. 1040 com Attach both schedules to the joint return. 1040 com If you and your spouse operate a business as a partnership, see Business Owned and Operated by Spouses and Qualified joint venture , earlier, under Who Must Pay Self-Employment Tax . 1040 com Prev Up Next Home More Online Publications