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Filing Taxes Self Employed

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Filing Taxes Self Employed

Filing taxes self employed Publication 527 - Additional Material Prev  Up  Next   Home   More Online Publications

The Filing Taxes Self Employed

Filing taxes self employed 10. Filing taxes self employed   Self-Employment (SE) Tax Table of Contents Who Must Pay SE Tax?Special Rules and Exceptions Figuring Earnings Subject to SE Tax Farm Optional Method Using Both Optional Methods Reporting Self-Employment Tax The SE tax rules apply no matter how old you are and even if you are already receiving social security and Medicare benefits. Filing taxes self employed Who Must Pay SE Tax? Generally, you must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Filing taxes self employed Use Schedule SE to figure net earnings from self-employment. Filing taxes self employed Sole proprietor or independent contractor. Filing taxes self employed   If you are self-employed as a sole proprietor or independent contractor, you generally use Schedule C or C-EZ (Form 1040) to figure your earnings subject to SE tax. Filing taxes self employed SE tax rate. Filing taxes self employed    For 2013, the SE tax rate on net earnings is 15. Filing taxes self employed 3% (12. Filing taxes self employed 4% social security tax plus 2. Filing taxes self employed 9% Medicare tax). Filing taxes self employed Maximum earnings subject to self-employment tax. Filing taxes self employed    Only the first $113,700 of your combined wages, tips, and net earnings in 2013 is subject to any combination of the 12. Filing taxes self employed 4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax. Filing taxes self employed   All of your combined wages, tips, and net earnings in 2013 are subject to any combination of the 2. Filing taxes self employed 9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax. Filing taxes self employed   If your wages and tips are subject to either social security or railroad retirement (tier 1) tax, or both, and total at least $113,700, do not pay the 12. Filing taxes self employed 4% social security part of the SE tax on any of your net earnings. Filing taxes self employed However, you must pay the 2. Filing taxes self employed 9% Medicare part of the SE tax on all your net earnings. Filing taxes self employed Special Rules and Exceptions Aliens. Filing taxes self employed   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. Filing taxes self employed S. Filing taxes self employed citizens. Filing taxes self employed Nonresident aliens are not subject to SE tax unless an international social security agreement in effect determines that they are covered under the U. Filing taxes self employed S. Filing taxes self employed social security system. Filing taxes self employed 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. Filing taxes self employed S. Filing taxes self employed residents for self-employment tax purposes. Filing taxes self employed For more information on aliens, see Publication 519, U. Filing taxes self employed S. Filing taxes self employed Tax Guide for Aliens. Filing taxes self employed Child employed by parent. Filing taxes self employed   You are not subject to SE tax if you are under age 18 and you are working for your father or mother. Filing taxes self employed Church employee. Filing taxes self employed    If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108. Filing taxes self employed 28 or more in wages from the church or organization. Filing taxes self employed For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Filing taxes self employed Fishing crew member. Filing taxes self employed   If you are a member of the crew on a boat that catches fish or other water life, your earnings are subject to SE tax if all the following conditions apply. Filing taxes self employed You do not get any pay for the work except your share of the catch or a share of the proceeds from the sale of the catch, unless the pay meets all the following conditions. Filing taxes self employed The pay is not more than $100 per trip. Filing taxes self employed The pay is received only if there is a minimum catch. Filing taxes self employed The pay is solely for additional duties (such as mate, engineer, or cook) for which additional cash pay is traditional in the fishing industry. Filing taxes self employed You get a share of the catch or a share of the proceeds from the sale of the catch. Filing taxes self employed Your share depends on the amount of the catch. Filing taxes self employed The boat's operating crew normally numbers fewer than 10 individuals. Filing taxes self employed (An operating crew is considered as normally made up of fewer than 10 if the average size of the crew on trips made during the last four calendar quarters is fewer than 10. Filing taxes self employed ) Notary public. Filing taxes self employed   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ but are not subject to self-employment tax (see the Instructions for Schedule SE (Form 1040)). Filing taxes self employed State or local government employee. Filing taxes self employed   You are subject to SE tax if you are an employee of a state or local government, are paid solely on a fee basis, and your services are not covered under a federal-state social security agreement. Filing taxes self employed Foreign government or international organization employee. Filing taxes self employed   You are subject to SE tax if both the following conditions are true. Filing taxes self employed You are a U. Filing taxes self employed S. Filing taxes self employed citizen employed in the United States, Puerto Rico, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, or the Virgin Islands by: A foreign government, A wholly-owned agency of a foreign government, or An international organization. Filing taxes self employed Your employer is not required to withhold social security and Medicare taxes from your wages. Filing taxes self employed U. Filing taxes self employed S. Filing taxes self employed citizen or resident alien residing abroad. Filing taxes self employed    If you are a self-employed U. Filing taxes self employed S. Filing taxes self employed citizen or resident alien living outside the United States, in most cases you must pay SE tax. Filing taxes self employed Do not reduce your foreign earnings from self-employment by your foreign earned income exclusion. Filing taxes self employed Exception. Filing taxes self employed    The United States has social security agreements with many countries to eliminate double taxation under two social security systems. Filing taxes self employed Under these agreements, you generally must only pay social security and Medicare taxes to the country in which you live. Filing taxes self employed The country to which you must pay the tax will issue a certificate which serves as proof of exemption from social security tax in the other country. Filing taxes self employed   For more information, see the Instructions for Schedule SE (Form 1040). Filing taxes self employed More Than One Business If you have earnings subject to SE tax from more than one trade, business, or profession, you must combine the net profit (or loss) from each to determine your total earnings subject to SE tax. Filing taxes self employed A loss from one business reduces your profit from another business. Filing taxes self employed Community Property Income If any of the income from a trade or business, other than a partnership, is community property income under state law, it is included in the earnings subject to SE tax of the spouse carrying on the trade or business. Filing taxes self employed Gain or Loss Do not include in earnings subject to SE tax a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Filing taxes self employed It does not matter whether the disposition is a sale, exchange, or an involuntary conversion. Filing taxes self employed Lost Income Payments If you are self-employed and reduce or stop your business activities, any payment you receive from insurance or other sources for the lost business income is included in earnings subject to SE tax. Filing taxes self employed If you are not working when you receive the payment, it still relates to your business and is included in earnings subject to SE tax, even though your business is temporarily inactive. Filing taxes self employed Figuring Earnings Subject to SE Tax Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. Filing taxes self employed The regular method. Filing taxes self employed The nonfarm optional method. Filing taxes self employed The farm optional method. Filing taxes self employed You must use the regular method unless you are eligible to use one or both of the optional methods. Filing taxes self employed 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. Filing taxes self employed You want to receive credit for social security benefit coverage. Filing taxes self employed You incurred child or dependent care expenses for which you could claim a credit. Filing taxes self employed (An optional method may increase your earned income, which could increase your credit. Filing taxes self employed ) You are entitled to the earned income credit. Filing taxes self employed (An optional method may increase your earned income, which could increase your credit. Filing taxes self employed ) You are entitled to the additional child tax credit. Filing taxes self employed (An optional method may increase your earned income, which could increase your credit. Filing taxes self employed ) Effects of using an optional method. Filing taxes self employed   Using an optional method could increase your SE tax. Filing taxes self employed Paying more SE tax could result in your getting higher benefits when you retire. Filing taxes self employed   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 tax or no tax using the regular method. Filing taxes self employed   The optional methods may be used only to figure your SE tax. Filing taxes self employed To figure your income tax, include your actual earnings in gross income, regardless of which method you use to determine SE tax. Filing taxes self employed Regular Method Multiply your total earnings subject to SE tax by 92. Filing taxes self employed 35% (. Filing taxes self employed 9235) to get your net earnings under the regular method. Filing taxes self employed See Short Schedule SE, line 4, or Long Schedule SE, line 4a. Filing taxes self employed Net earnings figured using the regular method are also called actual net earnings. Filing taxes self employed Nonfarm Optional Method Use the nonfarm optional method only for earnings that do not come from farming. Filing taxes self employed You may use this method if you meet all the following tests. Filing taxes self employed You are self-employed on a regular basis. Filing taxes self employed This means that your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. Filing taxes self employed The net earnings can be from either farm or nonfarm earnings or both. Filing taxes self employed You have used this method less than 5 years. Filing taxes self employed (There is a 5-year lifetime limit. Filing taxes self employed ) The years do not have to be one after another. Filing taxes self employed Your net nonfarm profits were: Less than $5,024, and Less than 72. Filing taxes self employed 189% of your gross nonfarm income. Filing taxes self employed Net nonfarm profits. Filing taxes self employed   Net nonfarm profit generally is the total of the amounts from: Line 31, Schedule C (Form 1040), Line 3, Schedule C-EZ (Form 1040), Box 14, code A, Schedule K-1 (Form 1065) (from nonfarm partnerships), and Box 9, code J1, Schedule K-1 (Form 1065-B). Filing taxes self employed   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. Filing taxes self employed Gross nonfarm income. Filing taxes self employed   Your gross nonfarm income generally is the total of the amounts from: Line 7, Schedule C (Form 1040), Line 1, Schedule C-EZ (Form 1040), Box 14, code C, Schedule K-1 (Form 1065) (from nonfarm partnerships), and Box 9, code J2, Schedule K-1 (Form 1065-B). Filing taxes self employed Figuring Nonfarm Net Earnings If you meet the three tests explained earlier, use the following table to figure your net earnings from self-employment under the nonfarm optional method. Filing taxes self employed Table 10-1. Filing taxes self employed Figuring Nonfarm Net Earnings IF your gross nonfarm income is. Filing taxes self employed . Filing taxes self employed . Filing taxes self employed THEN your net earnings are equal to. Filing taxes self employed . Filing taxes self employed . Filing taxes self employed $6,960 or less Two-thirds of your gross nonfarm income. Filing taxes self employed More than $6,960 $4,640 Actual net earnings. Filing taxes self employed   Your actual net earnings are 92. Filing taxes self employed 35% of your total earnings subject to SE tax (that is, multiply total earnings subject to SE tax by 92. Filing taxes self employed 35% (. Filing taxes self employed 9235) to get actual net earnings). Filing taxes self employed Actual net earnings are equivalent to net earnings figured using the regular method. Filing taxes self employed Optional net earnings less than actual net earnings. Filing taxes self employed   You cannot use this method to report an amount less than your actual net earnings from self-employment. Filing taxes self employed Gross nonfarm income of $6,960 or less. Filing taxes self employed   The following examples illustrate how to figure net earnings when gross nonfarm income is $6,960 or less. Filing taxes self employed Example 1. Filing taxes self employed Net nonfarm profit less than $5,024 and less than 72. Filing taxes self employed 189% of gross nonfarm income. Filing taxes self employed Ann Green runs a craft business. Filing taxes self employed Her actual net earnings from self-employment were $800 in 2011 and $900 in 2012. Filing taxes self employed She meets the test for being self-employed on a regular basis. Filing taxes self employed She has used the nonfarm optional method less than 5 years. Filing taxes self employed Her gross income and net profit in 2013 are as follows: Gross nonfarm income $5,400 Net nonfarm profit $1,200 Ann's actual net earnings for 2013 are $1,108 ($1,200 × . Filing taxes self employed 9235). Filing taxes self employed Because her net profit is less than $5,024 and less than 72. Filing taxes self employed 189% of her gross income, she can use the nonfarm optional method to figure net earnings of $3,600 (2/3 × $5,400). Filing taxes self employed Because these net earnings are higher than her actual net earnings, she can report net earnings of $3,600 for 2013. Filing taxes self employed Example 2. Filing taxes self employed Net nonfarm profit less than $5,024 but not less than 72. Filing taxes self employed 189% of gross nonfarm income. Filing taxes self employed Assume that in Example 1 Ann's gross income is $1,000 and her net profit is $800. Filing taxes self employed She must use the regular method to figure her net earnings. Filing taxes self employed She cannot use the nonfarm optional method because her net profit is not less than 72. Filing taxes self employed 189% of her gross income. Filing taxes self employed Example 3. Filing taxes self employed Net loss from a nonfarm business. Filing taxes self employed Assume that in Example 1 Ann has a net loss of $700. Filing taxes self employed She can use the nonfarm optional method and report $3,600 (2/3 × $5,400) as her net earnings. Filing taxes self employed Example 4. Filing taxes self employed Nonfarm net earnings less than $400. Filing taxes self employed Assume that in Example 1 Ann has gross income of $525 and a net profit of $175. Filing taxes self employed In this situation, she would not pay any SE tax under either the regular method or the nonfarm optional method because her net earnings under both methods are less than $400. Filing taxes self employed Gross nonfarm income of more than $6,960. Filing taxes self employed   The following examples illustrate how to figure net earnings when gross nonfarm income is more than $6,960. Filing taxes self employed Example 1. Filing taxes self employed Net nonfarm profit less than $5,024 and less than 72. Filing taxes self employed 189% of gross nonfarm income. Filing taxes self employed John White runs an appliance repair shop. Filing taxes self employed His actual net earnings from self-employment were $10,500 in 2011 and $9,500 in 2012. Filing taxes self employed He meets the test for being self-employed on a regular basis. Filing taxes self employed He has used the nonfarm optional method less than 5 years. Filing taxes self employed His gross income and net profit in 2013 are as follows: Gross nonfarm income $12,000 Net nonfarm profit $1,200 John's actual net earnings for 2013 are $1,108 ($1,200 × . Filing taxes self employed 9235). Filing taxes self employed Because his net profit is less than $5,024 and less than 72. Filing taxes self employed 189% of his gross income, he can use the nonfarm optional method to figure net earnings of $4,640. Filing taxes self employed Because these net earnings are higher than his actual net earnings, he can report net earnings of $4,640 for 2013. Filing taxes self employed Example 2. Filing taxes self employed Net nonfarm profit not less than $5,024. Filing taxes self employed Assume that in Example 1 John's net profit is $5,400. Filing taxes self employed He must use the regular method. Filing taxes self employed He cannot use the nonfarm optional method because his net nonfarm profit is not less than $5,024. Filing taxes self employed Example 3. Filing taxes self employed Net loss from a nonfarm business. Filing taxes self employed Assume that in Example 1 John has a net loss of $700. Filing taxes self employed He can use the nonfarm optional method and report $4,640 as his net earnings from self-employment. Filing taxes self employed Farm Optional Method Use the farm optional method only for earnings from a farming business. Filing taxes self employed See Publication 225 for information about this method. Filing taxes self employed Using Both Optional Methods If you have both farm and nonfarm earnings, you may be able to use both optional methods to determine your net earnings from self-employment. Filing taxes self employed To figure your net earnings using both optional methods, you must: Figure your farm and nonfarm net earnings separately under each method. Filing taxes self employed Do not combine farm earnings with nonfarm earnings to figure your net earnings under either method. Filing taxes self employed Add the net earnings figured under each method to arrive at your total net earnings from self-employment. Filing taxes self employed You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. Filing taxes self employed If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. Filing taxes self employed Example. Filing taxes self employed You are a self-employed farmer. Filing taxes self employed You also operate a retail grocery store. Filing taxes self employed Your gross income, actual net earnings from self-employment, and optional farm and optional nonfarm net earnings from self-employment are shown in Table 10-2. Filing taxes self employed Table 10-2. Filing taxes self employed Example—Farm and Nonfarm Earnings Income and Earnings Farm Nonfarm Gross income $3,000 $6,000 Actual net earnings $900 $500 Optional net earnings (2/3 of gross income) $2,000 $4,000 Table 10-3 shows four methods or combinations of methods you can use to figure net earnings from self-employment using the farm and nonfarm gross income and actual net earnings shown in Table 10-2. Filing taxes self employed Method 1. Filing taxes self employed Using the regular method for both farm and nonfarm income. Filing taxes self employed Method 2. Filing taxes self employed Using the optional method for farm income and the regular method for nonfarm income. Filing taxes self employed Method 3. Filing taxes self employed Using the regular method for farm income and the optional method for nonfarm income. Filing taxes self employed Method 4. Filing taxes self employed Using the optional method for both farm and nonfarm income. Filing taxes self employed Note. Filing taxes self employed Actual net earnings is the same as net earnings figured using the regular method. Filing taxes self employed Table 10-3. Filing taxes self employed Example—Net Earnings Net Earnings 1 2 3 4 Actual  farm $ 900   $ 900   Optional  farm   $ 2,000   $ 2,000 Actual nonfarm $ 500 $ 500     Optional nonfarm     $4,000 $4,000 Amount you can report: $1,400 $2,500 $4,900 $4,640* *Limited to $4,640 because you used both optional methods. Filing taxes self employed Fiscal Year Filer If you use a tax year other than the calendar year, you must use the tax rate and maximum earnings limit in effect at the beginning of your tax year. Filing taxes self employed Even if the tax rate or maximum earnings limit changes during your tax year, continue to use the same rate and limit throughout your tax year. Filing taxes self employed Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. Filing taxes self employed Then enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. Filing taxes self employed Most taxpayers can use Section A—Short Schedule SE to figure their SE tax. Filing taxes self employed However, certain taxpayers must use Section B—Long Schedule SE. Filing taxes self employed 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. Filing taxes self employed Joint return. Filing taxes self employed   Even if you file a joint return, you cannot file a joint Schedule SE. Filing taxes self employed This is true whether one spouse or both spouses have earnings subject to SE tax. Filing taxes self employed If both of you have earnings subject to SE tax, each of you must complete a separate Schedule SE. Filing taxes self employed 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. Filing taxes self employed Attach both schedules to the joint return. Filing taxes self employed More than one business. Filing taxes self employed   If you have more than one trade or business, you must combine the net profit (or loss) from each business to figure your SE tax. Filing taxes self employed A loss from one business will reduce your profit from another business. Filing taxes self employed File one Schedule SE showing the earnings from self-employment, but file a separate Schedule C, C-EZ, or F for each business. Filing taxes self employed Example. Filing taxes self employed You are the sole proprietor of two separate businesses. Filing taxes self employed You operate a restaurant that made a net profit of $25,000. Filing taxes self employed You also have a cabinetmaking business that had a net loss of $500. Filing taxes self employed You must file a Schedule C for the restaurant showing your net profit of $25,000 and another Schedule C for the cabinetmaking business showing your net loss of $500. Filing taxes self employed You file Schedule SE showing total earnings subject to SE tax of $24,500. Filing taxes self employed Prev  Up  Next   Home   More Online Publications