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File your taxes online Publication 514 - Introductory Material Table of Contents Reminders IntroductionOrdering forms and publications. File your taxes online Tax questions. File your taxes online Useful Items - You may want to see: Reminders Future developments. File your taxes online  For the latest information about developments related to Pub. File your taxes online 514, such as legislation enacted after it was published, go to www. File your taxes online irs. File your taxes online gov/pub514. File your taxes online Alternative minimum tax. File your taxes online  In addition to your regular income tax, you may be liable for the alternative minimum tax. File your taxes online A foreign tax credit may be allowed in figuring this tax. File your taxes online See the instructions for Form 6251, Alternative Minimum Tax—Individuals, for a discussion of the alternative minimum tax foreign tax credit. File your taxes online Change of address. File your taxes online  If your address changes from the address shown on your last return, use Form 8822, Change of Address, to notify the Internal Revenue Service. File your taxes online Photographs of missing children. File your taxes online  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. File your taxes online Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. File your taxes 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 your taxes online Introduction If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U. File your taxes online S. File your taxes online tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes. File your taxes online Taken as a deduction, foreign income taxes reduce your U. File your taxes online S. File your taxes online taxable income. File your taxes online Taken as a credit, foreign income taxes reduce your U. File your taxes online S. File your taxes online tax liability. File your taxes online In most cases, it is to your advantage to take foreign income taxes as a tax credit. File your taxes online The major scope of this publication is the foreign tax credit. File your taxes online The publication discusses: How to choose to take the credit or the deduction, Who can take the credit, What foreign taxes qualify for the credit, How to figure the credit, and How to carry over unused foreign taxes to other tax years. File your taxes online Unless you qualify for exemption from the foreign tax credit limit, you claim the credit by filing Form 1116 with your U. File your taxes online S. File your taxes online income tax return. File your taxes online Two examples with filled-in Forms 1116 are provided at the end of this publication. File your taxes online Comments and suggestions. File your taxes online   We welcome your comments about this publication and your suggestions for future editions. File your taxes online   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. File your taxes online NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. File your taxes online Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. File your taxes online   You can send your comments from www. File your taxes online irs. File your taxes online gov/formspubs/. File your taxes online Click on “More Information” and then on “Comment on Tax Forms and Publications”. File your taxes 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 your taxes online Ordering forms and publications. File your taxes online   Visit www. File your taxes online irs. File your taxes 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 your taxes online Internal Revenue Service 1201 N. File your taxes online Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. File your taxes online   If you have a tax question, check the information available on IRS. File your taxes online gov or call 1-800-829-1040. File your taxes online We cannot answer tax questions sent to either of the above addresses. File your taxes online Useful Items - You may want to see: Publication 54 Tax Guide for U. File your taxes online S. File your taxes online Citizens and Resident Aliens Abroad 519 U. File your taxes online S. File your taxes online Tax Guide for Aliens 570 Tax Guide for Individuals With Income From U. File your taxes online S. File your taxes online Possessions Form (and Instructions) 1116 Foreign Tax Credit See How To Get Tax Help near the end of this publication for information about getting these publications and this form. File your taxes online Prev  Up  Next   Home   More Online Publications
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File your taxes online 12. File your taxes 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 your taxes online Name change. File your taxes online Penalty for underpayment of estimated tax. File your taxes online Who Must Pay Self-Employment Tax?Limited partner. File your taxes online Community property. File your taxes 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 your taxes online  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. File your taxes online 4% to 12. File your taxes online 4%. File your taxes online The Medicare part of the tax remains at 2. File your taxes online 9%. File your taxes online As a result, the self-employment tax is increased from 13. File your taxes online 3% to 15. File your taxes online 3%. File your taxes online Additional Medicare Tax. File your taxes online . File your taxes online  For tax years beginning in 2013, a 0. File your taxes 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 your taxes online Use Form 8959, Additional Medicare Tax, to figure this tax. File your taxes online For more information, see the Instructions for Form 8959. File your taxes online Maximum net earnings. File your taxes online  The maximum net self-employment earnings subject to the social security part (12. File your taxes online 4%) of the self-employment tax increased to $113,700 for 2013. File your taxes online There is no maximum limit on earnings subject to the Medicare part (2. File your taxes online 9%). File your taxes online What's New for 2014 Maximum net earnings. File your taxes 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 your taxes online Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. File your taxes online It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. File your taxes online You usually have to pay SE tax if you are self-employed. File your taxes online You are usually self-employed if you operate your own farm on land you either own or rent. File your taxes online You have to figure SE tax on Schedule SE (Form 1040). File your taxes online Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. File your taxes online See chapter 13 for information on employment taxes. File your taxes online Self-employment tax rate. File your taxes online   For tax years beginning in 2013, the self-employment tax rate is 15. File your taxes online 3%. File your taxes online The rate consists of two parts: 12. File your taxes online 4% for social security (old-age, survivors, and disability insurance) and 2. File your taxes online 9% for Medicare (hospital insurance). File your taxes 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 your taxes online S. File your taxes online Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. File your taxes online S. File your taxes online Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. File your taxes online See chapter 16 for information about getting publications and forms. File your taxes online Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. File your taxes online Your payments of SE tax contribute to your coverage under the social security system. File your taxes online Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. File your taxes online How to become insured under social security. File your taxes online   You must be insured under the social security system before you begin receiving social security benefits. File your taxes online You are insured if you have the required number of credits (also called quarters of coverage). File your taxes online Earning credits in 2013. File your taxes online   You can earn a maximum of four credits per year. File your taxes online For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. File your taxes 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 your taxes online It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. File your taxes 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 your taxes online socialsecurity. File your taxes online gov. File your taxes online Making false statements to get or to increase social security benefits may subject you to penalties. File your taxes online The Social Security Administration (SSA) time limit for posting self-employment earnings. File your taxes 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 your taxes 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 your taxes online The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. File your taxes 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 your taxes online This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. File your taxes online An ITIN does not entitle you to social security benefits. File your taxes online Obtaining an ITIN does not change your immigration or employment status under U. File your taxes online S. File your taxes online law. File your taxes online Obtaining a social security number. File your taxes online   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. File your taxes online The application is also available in Spanish. File your taxes online You can get this form at any Social Security office or by calling 1-800-772-1213. File your taxes online    You can also download Form SS-5 from the Social Security Administration website at  www. File your taxes online socialsecurity. File your taxes online gov. File your taxes online   If you have a social security number from the time you were an employee, you must use that number. File your taxes online Do not apply for a new one. File your taxes online Replacing a lost social security card. File your taxes online   If you have a number but lost your card, file Form SS-5. File your taxes online You will get a new card showing your original number, not a new number. File your taxes online Name change. File your taxes online   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. File your taxes online Obtaining an individual taxpayer identification number. File your taxes 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 your taxes online To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. File your taxes online You can get this form by calling 1-800-829-3676. File your taxes online For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. File your taxes online Form W-7 and Publication 1915 are also available in Spanish. File your taxes online    You can also download Form W-7 from the IRS website at IRS. File your taxes online gov. File your taxes online Paying estimated tax. File your taxes online   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. File your taxes 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 your taxes online Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. File your taxes 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 your taxes online For more information about estimated tax for farmers, see chapter 15. File your taxes online Penalty for underpayment of estimated tax. File your taxes online   You may have to pay a penalty if you do not pay enough estimated tax by its due date. File your taxes 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 your taxes 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 your taxes online Aliens. File your taxes online   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. File your taxes online S. File your taxes online citizens. File your taxes online Nonresident aliens are not subject to self-employment tax. File your taxes 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 your taxes online S. File your taxes online residents for self-employment tax purposes. File your taxes online For more information on aliens, see Publication 519, U. File your taxes online S. File your taxes online Tax Guide for Aliens. File your taxes 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 your taxes online A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. File your taxes online Share farmer. File your taxes online   You are a self-employed farmer under an income-sharing arrangement if both the following apply. File your taxes online You produce a crop or raise livestock on land belonging to another person. File your taxes online Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. File your taxes 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 your taxes 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 your taxes online This will depend on whether the landowner has the right to direct or control your performance of services. File your taxes online Example. File your taxes online A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. File your taxes online Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. File your taxes online The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. File your taxes online The share farmer is provided a house in which to live. File your taxes online The landowner and the share farmer decide on a cropping plan. File your taxes 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 your taxes online The tax treatment of the landowner is discussed later under Landlord Participation in Farming. File your taxes online Contract farming. File your taxes 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 your taxes 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 your taxes online 4-H Club or FFA project. File your taxes 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 your taxes online Report the net income as “Other income” on line 21 of Form 1040. File your taxes online If necessary, attach a statement showing the gross income and expenses. File your taxes 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 your taxes online Such a project is generally not considered a trade or business. File your taxes online Partners in a partnership. File your taxes online   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. File your taxes online Limited partner. File your taxes online   If you are a limited partner, your partnership income is generally not subject to SE tax. File your taxes 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 your taxes online Business Owned and Operated by Spouses. File your taxes 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 your taxes 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 your taxes 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 your taxes online Qualified joint venture. File your taxes 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 your taxes online For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. File your taxes 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 your taxes online Each of you must file a separate Schedule F and a separate Schedule SE. File your taxes online For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). File your taxes online Spouse employee. File your taxes 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 your taxes online For more information about employment taxes, see chapter 13. File your taxes online Community property. File your taxes 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 your taxes online Do not treat any of your share as self-employment earnings of your spouse. File your taxes online Figuring Self-Employment Earnings Farmer. File your taxes online   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. File your taxes online Partnership income or loss. File your taxes 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 your taxes 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 your taxes 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 your taxes 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 your taxes online   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. File your taxes online   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). File your taxes online   For general information on partnerships, see Publication 541. File your taxes online More than one business. File your taxes 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 your taxes online A loss from one business reduces your profit from another business. File your taxes 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 your taxes online Community property. File your taxes 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 your taxes online Lost income payments. File your taxes online   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. File your taxes online These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. File your taxes 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 your taxes online A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. File your taxes online Gain or loss. File your taxes 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 your taxes online It does not matter whether the disposition is a sale, exchange, or involuntary conversion. File your taxes online For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. File your taxes online Investment property. File your taxes online Depreciable property or other fixed assets used in your trade or business. File your taxes 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 your taxes online Unharvested standing crops sold with land held more than 1 year. File your taxes 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 your taxes 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 your taxes online For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. File your taxes online Wages and salaries. File your taxes 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 your taxes online   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. File your taxes online Retired partner. File your taxes 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 your taxes online The retired partner performs no services for the partnership during the year. File your taxes online The retired partner is owed only the retirement payments. File your taxes online The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. File your taxes online The payments to the retired partner are lifelong periodic payments. File your taxes online Conservation Reserve Program (CRP) payments. File your taxes 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 your taxes 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 your taxes online Cost share payments you receive may qualify for the costsharing exclusion. File your taxes online See Cost-Sharing Exclusion (Improvements), above. File your taxes online CRP payments are reported to you on Form 1099G. File your taxes online Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. File your taxes online See the instructions for Schedule SE (Form 1040). File your taxes online Self-employed health insurance deduction. File your taxes 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 your taxes 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 your taxes 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 your taxes online Crop shares. File your taxes 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 your taxes online Feeding such crop shares to livestock is considered using them. File your taxes 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 your taxes online Material participation for landlords. File your taxes 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 your taxes online You do at least three of the following. File your taxes online Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. File your taxes online Furnish at least half the tools, equipment, and livestock used in the production activities. File your taxes online Advise or consult with your tenant. File your taxes online Inspect the production activities periodically. File your taxes 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 your taxes online You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. File your taxes online You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. File your taxes online These tests may be used as general guides for determining whether you are a material participant. File your taxes online Example. File your taxes online Drew Houston agrees to produce a crop on J. File your taxes online Clarke's cotton farm, with each receiving half the proceeds. File your taxes online Clarke advises Houston when to plant, spray, and pick the cotton. File your taxes online During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. File your taxes online Houston furnishes all labor needed to grow and harvest the crop. File your taxes 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 your taxes online The income Clarke receives from his cotton farm is included in his self-employment earnings. File your taxes online Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. File your taxes online The regular method. File your taxes online The farm optional method. File your taxes online The nonfarm optional method. File your taxes online You must use the regular method unless you are eligible to use one or both of the optional methods. File your taxes online See Figure 12-1 , shown later. File your taxes online Figure 12-1. File your taxes online Can I Use the Optional Methods? Please click here for the text description of the image. File your taxes online Figure 12–1. File your taxes 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 your taxes online You want to receive credit for social security benefit coverage. File your taxes online You incurred child or dependent care expenses for which you could claim a credit. File your taxes online (An optional method may increase your earned income, which could increase your credit. File your taxes online ) You are entitled to the earned income credit. File your taxes online (An optional method may increase your earned income, which could increase your credit. File your taxes online ) You are entitled to the additional child tax credit. File your taxes online (An optional method may increase your earned income, which could increase your credit. File your taxes online ) Effects of using an optional method. File your taxes online   Using an optional method could increase your SE tax. File your taxes online Paying more SE tax may result in you getting higher social security disability or retirement benefits. File your taxes 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 your taxes online   The optional methods may be used only to figure your SE tax. File your taxes 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 your taxes online Regular Method Multiply your total self-employment earnings by 92. File your taxes online 35% (. File your taxes online 9235) to get your net earnings under the regular method. File your taxes online See Short Schedule SE, line 4, or Long Schedule SE, line 4a. File your taxes online Net earnings figured using the regular method are also called “actual net earnings. File your taxes online ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. File your taxes online You can use this method if you meet either of the following tests. File your taxes online Your gross farm income is $6,960 or less. File your taxes online Your net farm profits are less than $5,024. File your taxes online Gross farm income. File your taxes 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 your taxes online Net farm profits. File your taxes 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 your taxes 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 your taxes online For more information, see Partnership income or loss , earlier. File your taxes online Figuring farm net earnings. File your taxes online   If you meet either of the two tests explained above, use Table 12-1. File your taxes online Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. File your taxes online Table 12-1. File your taxes online Figuring Farm Net Earnings IF your gross farm income  is. File your taxes online . File your taxes online . File your taxes online THEN your net earnings are equal to. File your taxes online . File your taxes online . File your taxes online $6,960 or less Two-thirds of your gross farm income. File your taxes online More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. File your taxes 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 your taxes online Your actual net earnings are your net earnings figured using the regular method, explained earlier. File your taxes online Example. File your taxes online Your gross farm income is $540 and your net farm profit is $460. File your taxes 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 your taxes online 35% of $460). File your taxes 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 your taxes 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 your taxes 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 your taxes 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 your taxes online For more information about the nonfarm optional method, see Publication 334. File your taxes online You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. File your taxes 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 your taxes online You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. File your taxes online If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. File your taxes online Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. File your taxes online Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. File your taxes online Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. File your taxes online However, certain taxpayers must use Section B–Long Schedule SE. File your taxes online Use the chart on page 1 of Schedule SE to find out which one to use. File your taxes 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 your taxes online Deduction for employer-equivalent portion of self-employment tax. File your taxes online   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. File your taxes online This deduction only affects your income tax. File your taxes online It does not affect either your net earnings from self-employment or your SE tax. File your taxes 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 your taxes online Joint return. File your taxes online   Even if you file a joint return, you cannot file a joint Schedule SE. File your taxes online This is true whether one spouse or both spouses have self-employment earnings. File your taxes online Your spouse is not considered self-employed just because you are. File your taxes online If both of you have self-employment earnings, each of you must complete a separate Schedule SE. File your taxes 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 your taxes online Attach both schedules to the joint return. File your taxes 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 your taxes online Prev  Up  Next   Home   More Online Publications