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

Taxes hrblock Index A Abatement of interest (see Interest, abatement) Appeal rights, Appeal Rights, Appeals to the Courts, Tax Court, District Court and Court of Federal Claims (see also Tax Court) Assistance (see Tax help) Authorization, third party, Third party authorization. Taxes hrblock B Burden of proof, Burden of proof. Taxes hrblock C Civil action (see Waivers, tax suits, civil action) Claim for refund, Claims for Refund Disallowance, Explanation of Any Claim for Refund Disallowance Estates on installment method, Claim for refund by estates electing the installment method of payment. Taxes hrblock Periods of financial disability, Periods of financial disability. Taxes hrblock Comments on publication, Comments and suggestions. Taxes hrblock Communications, privileged, Confidentiality privilege. Taxes hrblock , Confidentiality privilege. Taxes hrblock Confidentiality, Confidentiality privilege. Taxes hrblock , Confidentiality privilege. Taxes hrblock D Disability (see Financial disability, periods of) Disaster areas, abatement of interest, Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions E Employment status, Tax Court review of, Jurisdiction for determination of employment status. Taxes hrblock Estates Claim for refund, Claim for refund by estates electing the installment method of payment. Taxes hrblock Examination of returns, Examination of Returns F Fast track mediation, Fast track mediation. Taxes hrblock Financial disability, periods of Claim for refund, Periods of financial disability. Taxes hrblock Form 8379, Injured spouse exception. Taxes hrblock 8857, Form 8857. Taxes hrblock Free tax services, Free help with your tax return. Taxes hrblock H Help (see Tax help) I Injured spouse, Injured spouse exception. Taxes hrblock Innocent spouse relief, Tax Court review of request for relief from joint and several liability on a joint return. Taxes hrblock , Relief from joint and several liability on a joint return. Taxes hrblock Installment agreement, Installment Agreement Request Installment method Estates, claim for refund by, Claim for refund by estates electing the installment method of payment. Taxes hrblock Interest Abatement Disaster areas, Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Error or delay by IRS, Abatement of Interest Due to Error or Delay by the IRS Terrorist attacks, Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Netting, overlapping underpayments and overpayments, Interest Netting Suspended, Suspension of interest and penalties. Taxes hrblock J Joint and several liability, relief from, Tax Court review of request for relief from joint and several liability on a joint return. Taxes hrblock , Relief from joint and several liability on a joint return. Taxes hrblock L Losses Disaster area, Disaster area claims for refund. Taxes hrblock Low Income Taxpayer Clinics, Low Income Taxpayer Clinics. Taxes hrblock M Mediation, fast track, Fast track mediation. Taxes hrblock More information, Useful Items - You may want to see: N Notice of deficiency Timely mailing, Suspension of interest and penalties. Taxes hrblock Notices Third party contacts, Notice of IRS contact of third parties. Taxes hrblock O Offer in compromise, Offer in Compromise Overpayments Offsets against state tax, Offset of past-due state income tax obligations against overpayments. Taxes hrblock P Penalties, suspended, Suspension of interest and penalties. Taxes hrblock Practitioners, federally authorized Confidential communications, Confidentiality privilege. Taxes hrblock , Confidentiality privilege. Taxes hrblock Presidentially declared disaster, Disaster area claims for refund. Taxes hrblock Publications (see Tax help) R Refund, Claims for Refund, Periods of financial disability. Taxes hrblock , Offset of past-due state income tax obligations against overpayments. Taxes hrblock Reduced, Reduced Refund Refund deadline postponement, Postponed refund deadlines. Taxes hrblock Refund or credit before court decision, Refund or Credit of Overpayments Before Final Determination Rights Communications, privileged, Confidentiality privilege. Taxes hrblock , Confidentiality privilege. Taxes hrblock Requests to waive, Prohibition on requests to taxpayers to give up rights to bring civil action. Taxes hrblock S Suggestions for publication, Comments and suggestions. Taxes hrblock T Tax Court, Appeals to the Courts, Tax Court Employment status, review of, Jurisdiction for determination of employment status. Taxes hrblock Innocent spouse relief, review of request for, Tax Court review of request for relief from joint and several liability on a joint return. Taxes hrblock Refund or credit before decision, Refund or Credit of Overpayments Before Final Determination Tax help, How To Get Tax Help Taxpayer Advocate, Taxpayer Advocate Service. Taxes hrblock Taxpayer Advocate Service, Taxpayer Advocate Service. Taxes hrblock Terrorist attacks, abatement of interest, Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Third party authorization, Third party authorization. Taxes hrblock TTY/TDD information, How To Get Tax Help W Waivers Tax suits, civil action, Prohibition on requests to taxpayers to give up rights to bring civil action. Taxes hrblock Z Zero rate, overlapping periods of interest (see Interest, netting) Prev  Up     Home   More Online Publications