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File federal and state taxes free online Publication 972 - Introductory Material Table of Contents Future Developments Reminder IntroductionOrdering forms and publications. File federal and state taxes free online Tax questions. File federal and state taxes free online Future Developments For the latest information about developments related to Publication 972, such as legislation enacted after it was published, go to www. File federal and state taxes free online irs. File federal and state taxes free online gov/pub972. File federal and state taxes free online Reminder Photographs of missing children. File federal and state taxes free online  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. File federal and state taxes free online Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. File federal and state taxes free online You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. File federal and state taxes free online Introduction The purpose of this publication is: To figure the child tax credit you claim on Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48; and To figure the amount of earned income you enter on line 4a of Schedule 8812 (Form 1040A or 1040), Child Tax Credit. File federal and state taxes free online This publication is intended primarily for individuals sent here by the instructions to Forms 1040, 1040A, or 1040NR, or Schedule 8812. File federal and state taxes free online Even if you were not sent here by the instructions to one of the forms or the schedule, you can still choose to use this publication to figure your credit. File federal and state taxes free online However, most individuals can use a simpler worksheet in their tax form instructions. File federal and state taxes free online If you were sent here from your Form 1040, Form 1040A, or Form 1040NR instructions. File federal and state taxes free online   Complete the Child Tax Credit Worksheet , later in this publication. File federal and state taxes free online If you were sent here from your Schedule 8812 instructions. File federal and state taxes free online   Complete the 1040 and 1040NR Filers — Earned Income Worksheet , later in this publication. File federal and state taxes free online If you have not read your Form 1040, Form 1040A, or Form 1040NR instructions. File federal and state taxes free online   Read the explanation of who must use this publication next. File federal and state taxes free online If you find that you are not required to use this publication to figure your child tax credit, you can use the simpler worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions to figure your credit. File federal and state taxes free online Who must use this publication. File federal and state taxes free online   If you answer “Yes” to either of the following questions, you must use this publication to figure your child tax credit. File federal and state taxes free online Are you excluding income from Puerto Rico or filing any of the following forms? Form 2555 or 2555-EZ (relating to foreign earned income). File federal and state taxes free online Form 4563 (exclusion of income for residents of American Samoa). File federal and state taxes free online Are you claiming any of the following credits? Mortgage interest credit, Form 8396. File federal and state taxes free online Adoption credit, Form 8839. File federal and state taxes free online Residential energy efficient property credit, Form 5695, Part I. File federal and state taxes free online District of Columbia first-time homebuyer credit, Form 8859. File federal and state taxes free online Comments and suggestions. File federal and state taxes free online   We welcome your comments about this publication and your suggestions for future editions. File federal and state taxes free online   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. File federal and state taxes free online NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. File federal and state taxes free online Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. File federal and state taxes free online   You can send your comments from www. File federal and state taxes free online irs. File federal and state taxes free online gov/formspubs/. File federal and state taxes free online Click on “More Information” and then on “Comment on Tax Forms and Publications. File federal and state taxes free online ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. File federal and state taxes free online Ordering forms and publications. File federal and state taxes free online   Visit www. File federal and state taxes free online irs. File federal and state taxes free online gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. File federal and state taxes free online Internal Revenue Service 1201 N. File federal and state taxes free online Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. File federal and state taxes free online   If you have a tax question, check the information available on IRS. File federal and state taxes free online gov or call 1-800-829-1040. File federal and state taxes free online We cannot answer tax questions sent to either of the above addresses. File federal and state taxes free online Prev  Up  Next   Home   More Online Publications
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File federal and state taxes free online 12. File federal and state taxes free online   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. File federal and state taxes free online Name change. File federal and state taxes free online Penalty for underpayment of estimated tax. File federal and state taxes free online Who Must Pay Self-Employment Tax?Limited partner. File federal and state taxes free online Community property. File federal and state taxes free online 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. File federal and state taxes free online  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. File federal and state taxes free online 4% to 12. File federal and state taxes free online 4%. File federal and state taxes free online The Medicare part of the tax remains at 2. File federal and state taxes free online 9%. File federal and state taxes free online As a result, the self-employment tax is increased from 13. File federal and state taxes free online 3% to 15. File federal and state taxes free online 3%. File federal and state taxes free online Additional Medicare Tax. File federal and state taxes free online . File federal and state taxes free online  For tax years beginning in 2013, a 0. File federal and state taxes free online 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. File federal and state taxes free online Use Form 8959, Additional Medicare Tax, to figure this tax. File federal and state taxes free online For more information, see the Instructions for Form 8959. File federal and state taxes free online Maximum net earnings. File federal and state taxes free online  The maximum net self-employment earnings subject to the social security part (12. File federal and state taxes free online 4%) of the self-employment tax increased to $113,700 for 2013. File federal and state taxes free online There is no maximum limit on earnings subject to the Medicare part (2. File federal and state taxes free online 9%). File federal and state taxes free online What's New for 2014 Maximum net earnings. File federal and state taxes free online  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. File federal and state taxes free online Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. File federal and state taxes free online It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. File federal and state taxes free online You usually have to pay SE tax if you are self-employed. File federal and state taxes free online You are usually self-employed if you operate your own farm on land you either own or rent. File federal and state taxes free online You have to figure SE tax on Schedule SE (Form 1040). File federal and state taxes free online Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. File federal and state taxes free online See chapter 13 for information on employment taxes. File federal and state taxes free online Self-employment tax rate. File federal and state taxes free online   For tax years beginning in 2013, the self-employment tax rate is 15. File federal and state taxes free online 3%. File federal and state taxes free online The rate consists of two parts: 12. File federal and state taxes free online 4% for social security (old-age, survivors, and disability insurance) and 2. File federal and state taxes free online 9% for Medicare (hospital insurance). File federal and state taxes free online 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. File federal and state taxes free online S. File federal and state taxes free online Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. File federal and state taxes free online S. File federal and state taxes free online Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. File federal and state taxes free online See chapter 16 for information about getting publications and forms. File federal and state taxes free online Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. File federal and state taxes free online Your payments of SE tax contribute to your coverage under the social security system. File federal and state taxes free online Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. File federal and state taxes free online How to become insured under social security. File federal and state taxes free online   You must be insured under the social security system before you begin receiving social security benefits. File federal and state taxes free online You are insured if you have the required number of credits (also called quarters of coverage). File federal and state taxes free online Earning credits in 2013. File federal and state taxes free online   You can earn a maximum of four credits per year. File federal and state taxes free online For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. File federal and state taxes free online 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. File federal and state taxes free online It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. File federal and state taxes free online 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. File federal and state taxes free online socialsecurity. File federal and state taxes free online gov. File federal and state taxes free online Making false statements to get or to increase social security benefits may subject you to penalties. File federal and state taxes free online The Social Security Administration (SSA) time limit for posting self-employment earnings. File federal and state taxes free online   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. File federal and state taxes free online    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. File federal and state taxes free online The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. File federal and state taxes free online 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). File federal and state taxes free online This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. File federal and state taxes free online An ITIN does not entitle you to social security benefits. File federal and state taxes free online Obtaining an ITIN does not change your immigration or employment status under U. File federal and state taxes free online S. File federal and state taxes free online law. File federal and state taxes free online Obtaining a social security number. File federal and state taxes free online   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. File federal and state taxes free online The application is also available in Spanish. File federal and state taxes free online You can get this form at any Social Security office or by calling 1-800-772-1213. File federal and state taxes free online    You can also download Form SS-5 from the Social Security Administration website at  www. File federal and state taxes free online socialsecurity. File federal and state taxes free online gov. File federal and state taxes free online   If you have a social security number from the time you were an employee, you must use that number. File federal and state taxes free online Do not apply for a new one. File federal and state taxes free online Replacing a lost social security card. File federal and state taxes free online   If you have a number but lost your card, file Form SS-5. File federal and state taxes free online You will get a new card showing your original number, not a new number. File federal and state taxes free online Name change. File federal and state taxes free online   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. File federal and state taxes free online Obtaining an individual taxpayer identification number. File federal and state taxes free online   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. File federal and state taxes free online To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. File federal and state taxes free online You can get this form by calling 1-800-829-3676. File federal and state taxes free online For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. File federal and state taxes free online Form W-7 and Publication 1915 are also available in Spanish. File federal and state taxes free online    You can also download Form W-7 from the IRS website at IRS. File federal and state taxes free online gov. File federal and state taxes free online Paying estimated tax. File federal and state taxes free online   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. File federal and state taxes free online 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. File federal and state taxes free online Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. File federal and state taxes free online   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. File federal and state taxes free online For more information about estimated tax for farmers, see chapter 15. File federal and state taxes free online Penalty for underpayment of estimated tax. File federal and state taxes free online   You may have to pay a penalty if you do not pay enough estimated tax by its due date. File federal and state taxes free online 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. File federal and state taxes free online The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. File federal and state taxes free online Aliens. File federal and state taxes free online   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. File federal and state taxes free online S. File federal and state taxes free online citizens. File federal and state taxes free online Nonresident aliens are not subject to self-employment tax. File federal and state taxes free online 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. File federal and state taxes free online S. File federal and state taxes free online residents for self-employment tax purposes. File federal and state taxes free online For more information on aliens, see Publication 519, U. File federal and state taxes free online S. File federal and state taxes free online Tax Guide for Aliens. File federal and state taxes free online 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. File federal and state taxes free online A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. File federal and state taxes free online Share farmer. File federal and state taxes free online   You are a self-employed farmer under an income-sharing arrangement if both the following apply. File federal and state taxes free online You produce a crop or raise livestock on land belonging to another person. File federal and state taxes free online Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. File federal and state taxes free online 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. File federal and state taxes free online   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. File federal and state taxes free online This will depend on whether the landowner has the right to direct or control your performance of services. File federal and state taxes free online Example. File federal and state taxes free online A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. File federal and state taxes free online Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. File federal and state taxes free online The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. File federal and state taxes free online The share farmer is provided a house in which to live. File federal and state taxes free online The landowner and the share farmer decide on a cropping plan. File federal and state taxes free online 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. File federal and state taxes free online The tax treatment of the landowner is discussed later under Landlord Participation in Farming. File federal and state taxes free online Contract farming. File federal and state taxes free online   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. File federal and state taxes free online 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. File federal and state taxes free online 4-H Club or FFA project. File federal and state taxes free online   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. File federal and state taxes free online Report the net income as “Other income” on line 21 of Form 1040. File federal and state taxes free online If necessary, attach a statement showing the gross income and expenses. File federal and state taxes free online 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. File federal and state taxes free online Such a project is generally not considered a trade or business. File federal and state taxes free online Partners in a partnership. File federal and state taxes free online   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. File federal and state taxes free online Limited partner. File federal and state taxes free online   If you are a limited partner, your partnership income is generally not subject to SE tax. File federal and state taxes free online 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). File federal and state taxes free online Business Owned and Operated by Spouses. File federal and state taxes free online   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. File federal and state taxes free online You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. File federal and state taxes free online 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. File federal and state taxes free online Qualified joint venture. File federal and state taxes free online   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. File federal and state taxes free online For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. File federal and state taxes free online   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. File federal and state taxes free online Each of you must file a separate Schedule F and a separate Schedule SE. File federal and state taxes free online For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). File federal and state taxes free online Spouse employee. File federal and state taxes free online   If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. File federal and state taxes free online For more information about employment taxes, see chapter 13. File federal and state taxes free online Community property. File federal and state taxes free online   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. File federal and state taxes free online Do not treat any of your share as self-employment earnings of your spouse. File federal and state taxes free online Figuring Self-Employment Earnings Farmer. File federal and state taxes free online   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. File federal and state taxes free online Partnership income or loss. File federal and state taxes free online   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). File federal and state taxes free online Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). File federal and state taxes free online 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). File federal and state taxes free online   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. File federal and state taxes free online   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. File federal and state taxes free online   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). File federal and state taxes free online   For general information on partnerships, see Publication 541. File federal and state taxes free online More than one business. File federal and state taxes free online   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. File federal and state taxes free online A loss from one business reduces your profit from another business. File federal and state taxes free online 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. File federal and state taxes free online Community property. File federal and state taxes free online   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. File federal and state taxes free online Lost income payments. File federal and state taxes free online   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. File federal and state taxes free online These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. File federal and state taxes free online 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). File federal and state taxes free online A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. File federal and state taxes free online Gain or loss. File federal and state taxes free online   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. File federal and state taxes free online It does not matter whether the disposition is a sale, exchange, or involuntary conversion. File federal and state taxes free online For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. File federal and state taxes free online Investment property. File federal and state taxes free online Depreciable property or other fixed assets used in your trade or business. File federal and state taxes free online 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. File federal and state taxes free online Unharvested standing crops sold with land held more than 1 year. File federal and state taxes free online 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. File federal and state taxes free online   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. File federal and state taxes free online For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. File federal and state taxes free online Wages and salaries. File federal and state taxes free online   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. File federal and state taxes free online   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. File federal and state taxes free online Retired partner. File federal and state taxes free online   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. File federal and state taxes free online The retired partner performs no services for the partnership during the year. File federal and state taxes free online The retired partner is owed only the retirement payments. File federal and state taxes free online The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. File federal and state taxes free online The payments to the retired partner are lifelong periodic payments. File federal and state taxes free online Conservation Reserve Program (CRP) payments. File federal and state taxes free online   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. File federal and state taxes free online You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. File federal and state taxes free online Cost share payments you receive may qualify for the costsharing exclusion. File federal and state taxes free online See Cost-Sharing Exclusion (Improvements), above. File federal and state taxes free online CRP payments are reported to you on Form 1099G. File federal and state taxes free online Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. File federal and state taxes free online See the instructions for Schedule SE (Form 1040). File federal and state taxes free online Self-employed health insurance deduction. File federal and state taxes free online   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). File federal and state taxes free online 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. File federal and state taxes free online 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. File federal and state taxes free online Crop shares. File federal and state taxes free online   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. File federal and state taxes free online Feeding such crop shares to livestock is considered using them. File federal and state taxes free online Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. File federal and state taxes free online Material participation for landlords. File federal and state taxes free online   You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. File federal and state taxes free online You do at least three of the following. File federal and state taxes free online Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. File federal and state taxes free online Furnish at least half the tools, equipment, and livestock used in the production activities. File federal and state taxes free online Advise or consult with your tenant. File federal and state taxes free online Inspect the production activities periodically. File federal and state taxes free online You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. File federal and state taxes free online You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. File federal and state taxes free online You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. File federal and state taxes free online These tests may be used as general guides for determining whether you are a material participant. File federal and state taxes free online Example. File federal and state taxes free online Drew Houston agrees to produce a crop on J. File federal and state taxes free online Clarke's cotton farm, with each receiving half the proceeds. File federal and state taxes free online Clarke advises Houston when to plant, spray, and pick the cotton. File federal and state taxes free online During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. File federal and state taxes free online Houston furnishes all labor needed to grow and harvest the crop. File federal and state taxes free online 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. File federal and state taxes free online The income Clarke receives from his cotton farm is included in his self-employment earnings. File federal and state taxes free online Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. File federal and state taxes free online The regular method. File federal and state taxes free online The farm optional method. File federal and state taxes free online The nonfarm optional method. File federal and state taxes free online You must use the regular method unless you are eligible to use one or both of the optional methods. File federal and state taxes free online See Figure 12-1 , shown later. File federal and state taxes free online Figure 12-1. File federal and state taxes free online Can I Use the Optional Methods? Please click here for the text description of the image. File federal and state taxes free online Figure 12–1. File federal and state taxes free online 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. File federal and state taxes free online You want to receive credit for social security benefit coverage. File federal and state taxes free online You incurred child or dependent care expenses for which you could claim a credit. File federal and state taxes free online (An optional method may increase your earned income, which could increase your credit. File federal and state taxes free online ) You are entitled to the earned income credit. File federal and state taxes free online (An optional method may increase your earned income, which could increase your credit. File federal and state taxes free online ) You are entitled to the additional child tax credit. File federal and state taxes free online (An optional method may increase your earned income, which could increase your credit. File federal and state taxes free online ) Effects of using an optional method. File federal and state taxes free online   Using an optional method could increase your SE tax. File federal and state taxes free online Paying more SE tax may result in you getting higher social security disability or retirement benefits. File federal and state taxes free online   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. File federal and state taxes free online   The optional methods may be used only to figure your SE tax. File federal and state taxes free online To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. File federal and state taxes free online Regular Method Multiply your total self-employment earnings by 92. File federal and state taxes free online 35% (. File federal and state taxes free online 9235) to get your net earnings under the regular method. File federal and state taxes free online See Short Schedule SE, line 4, or Long Schedule SE, line 4a. File federal and state taxes free online Net earnings figured using the regular method are also called “actual net earnings. File federal and state taxes free online ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. File federal and state taxes free online You can use this method if you meet either of the following tests. File federal and state taxes free online Your gross farm income is $6,960 or less. File federal and state taxes free online Your net farm profits are less than $5,024. File federal and state taxes free online Gross farm income. File federal and state taxes free online   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). File federal and state taxes free online Net farm profits. File federal and state taxes free online   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). File federal and state taxes free online 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. File federal and state taxes free online For more information, see Partnership income or loss , earlier. File federal and state taxes free online Figuring farm net earnings. File federal and state taxes free online   If you meet either of the two tests explained above, use Table 12-1. File federal and state taxes free online Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. File federal and state taxes free online Table 12-1. File federal and state taxes free online Figuring Farm Net Earnings IF your gross farm income  is. File federal and state taxes free online . File federal and state taxes free online . File federal and state taxes free online THEN your net earnings are equal to. File federal and state taxes free online . File federal and state taxes free online . File federal and state taxes free online $6,960 or less Two-thirds of your gross farm income. File federal and state taxes free online More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. File federal and state taxes free online   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. File federal and state taxes free online Your actual net earnings are your net earnings figured using the regular method, explained earlier. File federal and state taxes free online Example. File federal and state taxes free online Your gross farm income is $540 and your net farm profit is $460. File federal and state taxes free online Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. File federal and state taxes free online 35% of $460). File federal and state taxes free online You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. File federal and state taxes free online Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. File federal and state taxes free online If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. File federal and state taxes free online 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. File federal and state taxes free online For more information about the nonfarm optional method, see Publication 334. File federal and state taxes free online You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. File federal and state taxes free online 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. File federal and state taxes free online You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. File federal and state taxes free online If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. File federal and state taxes free online Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. File federal and state taxes free online Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. File federal and state taxes free online Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. File federal and state taxes free online However, certain taxpayers must use Section B–Long Schedule SE. File federal and state taxes free online Use the chart on page 1 of Schedule SE to find out which one to use. File federal and state taxes free online 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. File federal and state taxes free online Deduction for employer-equivalent portion of self-employment tax. File federal and state taxes free online   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. File federal and state taxes free online This deduction only affects your income tax. File federal and state taxes free online It does not affect either your net earnings from self-employment or your SE tax. File federal and state taxes free online   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. File federal and state taxes free online Joint return. File federal and state taxes free online   Even if you file a joint return, you cannot file a joint Schedule SE. File federal and state taxes free online This is true whether one spouse or both spouses have self-employment earnings. File federal and state taxes free online Your spouse is not considered self-employed just because you are. File federal and state taxes free online If both of you have self-employment earnings, each of you must complete a separate Schedule SE. File federal and state taxes free online 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. File federal and state taxes free online Attach both schedules to the joint return. File federal and state taxes free online 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 . File federal and state taxes free online Prev  Up  Next   Home   More Online Publications