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.If you file a joint return, you must compute the self-employment income of you and your spouse separately; so if you both haveself-employment income you have to file two schedules.WHAT IS DEDUCTIBLE?The tax is computed on net earnings from self-employment, which is generallyself-employment income reduced by the business deductions that are allow-able for income tax.If you have more than one business, combine the net in-come or loss from each to determine your net earnings from self-employment.Some of the deductions that reduce taxable income for income tax pur-poses but do not count in determining net income from self-employment arethe following: BUSINESS, SALES, AND USE TAXES1021.Deductions for personal and dependency exemptions.2.The standard deduction or itemized deductions.3.The net operating loss deduction (meaning business losses from otheryears that are carried to the current year).4.Contributions on your behalf to a retirement plan, including an IRA.5.The self-employed health insurance deduction.For income tax purposes, you can deduct half of your SE tax computed onSchedule SE.8 This deduction goes on line 29 of Form 1040 rather than onSchedule SE.Instead of allowing this deduction for SE tax purposes (whichwould create a simultaneous equation), the Code allows you to compute the taxon only 92.35 percent of net earnings from self-employment (100% - 7.65%)HOW MUCH IS TAXABLE?The maximum amount that is subject to the 12.4 percent rate is $90,000 in2005, reduced by any wages you earned that were subject to Social Security tax.All of your net earnings from self-employment are subject to the additional 2.9percent rate (Medicare).So if your combined wages and net earnings from self-employment were less than $90,000, all of your net self-employment earningsare taxed at 15.3 percent.If net earnings from self-employment are greaterthan the excess of $90,000 over wages, only the amount equal to the excess istaxed at 15.3 percent; the rest is taxed at 2.9 percent.The instructions to Schedule SE tell you how to use either the nonfarm orfarm optional method to figure the tax if you have a loss or a small amount ofExample 6.2Jeff Ferd had net income from self-employment of $70,000 in 2005, andreceived $33,200 in wages subject to Social Security and Medicare taxes.Jeff s net earnings from self-employment are $64,645 ($70,000 × 0.9235).The maximum income subject to the 15.3% SE tax rate is $56,800 ($90,000 -$33,200).The tax at 15.3% is $8,690.The balance of Jeff s net self-employment earnings is taxed at 2.9%.That amount is $228 ($7,845 × 2.9%).That makes Jeff s total SE tax $8,918 ($8,690 + $228).One half of thisamount, or $4,459, is deductible on line 29 of Form 1040.See the computa-tion on page 2 of Schedule SE in Figure 6.1. SELF-EMPLOYMENT TAX103Schedule SE (Form 1040) 2005 Page 2Attachment Sequence No.17Name of person with self-employment income (as shown on Form 1040)Social security number of personJeff Ferd with self-employment income 999 88 7777Section B Long Schedule SEPart I Self-Employment TaxNote.If your only income subject to self-employment tax is church employee income, skip lines 1 through 4b.Enter -0- on line4c and go to line 5a.Income from services you performed as a minister or a member of a religious order is not church employeeincome.See page SE-1.A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but youhad $400 or more of other net earnings from self-employment, check here and continue with Part I1 Net farm profit or (loss) from Schedule F, line 36, and farm partnerships, Schedule K-1 (Form11065), line 15a.Note.Skip this line if you use the farm optional method.See page SE-32 Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065),line 15a (other than farming); and Schedule K-1 (Form 1065-B), box 9.Ministers and membersof religious orders, see page SE-1 for amounts to report on this line.See page SE-2 for other70,0002income to report.Note.Skip this line if you use the nonfarm optional method.See page SE-370,00033 Combine lines 1 and 24a 64,6454a If line 3 is more than zero, multiply line 3 by 92.35% (.9235).Otherwise, enter amount from line 34bb If you elect one or both of the optional methods, enter the total of lines 15 and 17 herec Combine lines 4a and 4b.If less than $400, do not file this schedule; you do not owe self-employment64,6454ctax.Exception.If less than $400 and you had church employee income, enter -0- and continue5a Enter your church employee income from Form W-2.Caution.See5apage SE-1 for definition of church employee income5bb Multiply line 5a by 92.35% (.9235).If less than $100, enter -0-6 64,6456 Net earnings from self-employment.Add lines 4c and 5b7 Maximum amount of combined wages and self-employment earnings subject to social security7 90,000tax or the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 20058a Total social security wages and tips (total of boxes 3 and 7 on Form(s)33,2008aW-2) and railroad retirement (tier 1) compensation8bb Unreported tips subject to social security tax (from Form 4137, line 9)33,2008cc Add lines 8a and 8b56,80099 Subtract line 8c from line 7.If zero or less, enter -0- here and on line 10 and go to line 1110 7,04310 Multiply the smaller of line 6 or line 9 by 12.4% (.124)11 1,87511 Multiply line 6 by 2.9% (.029)8,9181212 Self-employment tax.Add lines 10 and 11.Enter here and on Form 1040, line 5613 Deduction for one-half of self-employment tax.Multiply line 12 by50% (.5).Enter the result here and on Form 1040, line 2913Part II Optional Methods To Figure Net Earnings (See page SE-3.)Farm Optional Method.You may use this method only if:Your gross farm income1 was not more than $2,400 orYour net farm profits2 were less than $1,733.14 1,600 0014 Maximum income for optional methods15 Enter the smaller of: two-thirds (2 3) of gross farm income1 (not less than zero) or $1,600.Alsoinclude this amount on line 4b above 15Nonfarm Optional Method.You may use this method only if:Your net nonfarm profits3 were less than $1,733 and also less than 72.189% of your gross nonfarmincome4 andYou had net earnings from self-employment of at least $400 in 2 of the prior 3 years.Caution.You may use this method no more than five times.1616 Subtract line 15 from line 1417 Enter the smaller of: two-thirds (2 3) of gross nonfarm income4 (not less than zero) or the amounton line 16.Also include this amount on line 4b above 171 3From Sch.F, line 11, and Sch.K-1 (Form 1065), line 15b.From Sch.C, line 31; Sch.C-EZ, line 3; Sch.K-1 (Form 1065), line 15a; and Sch.K-1 (Form 1065-B), box 9.2 4From Sch.F, line 36, and Sch.K-1 (Form 1065), line 15a.From Sch.C, line 7; Sch.C-EZ, line 1; Sch.K-1 (Form 1065), line 15c; and Sch.K-1 (Form 1065-B), box 9.Schedule SE (Form 1040) 2005FIGURE 6.1 BUSINESS, SALES, AND USE TAXES104income from self-employment and you want to receive credit for Social Securitybenefit coverage.Federal Estimated Tax PaymentsEven though your final tax liability cannot be determined until you file yourincome tax return at the end of the year, the government wants you to payyour taxes in installments throughout the year [ Pobierz caÅ‚ość w formacie PDF ]
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.If you file a joint return, you must compute the self-employment income of you and your spouse separately; so if you both haveself-employment income you have to file two schedules.WHAT IS DEDUCTIBLE?The tax is computed on net earnings from self-employment, which is generallyself-employment income reduced by the business deductions that are allow-able for income tax.If you have more than one business, combine the net in-come or loss from each to determine your net earnings from self-employment.Some of the deductions that reduce taxable income for income tax pur-poses but do not count in determining net income from self-employment arethe following: BUSINESS, SALES, AND USE TAXES1021.Deductions for personal and dependency exemptions.2.The standard deduction or itemized deductions.3.The net operating loss deduction (meaning business losses from otheryears that are carried to the current year).4.Contributions on your behalf to a retirement plan, including an IRA.5.The self-employed health insurance deduction.For income tax purposes, you can deduct half of your SE tax computed onSchedule SE.8 This deduction goes on line 29 of Form 1040 rather than onSchedule SE.Instead of allowing this deduction for SE tax purposes (whichwould create a simultaneous equation), the Code allows you to compute the taxon only 92.35 percent of net earnings from self-employment (100% - 7.65%)HOW MUCH IS TAXABLE?The maximum amount that is subject to the 12.4 percent rate is $90,000 in2005, reduced by any wages you earned that were subject to Social Security tax.All of your net earnings from self-employment are subject to the additional 2.9percent rate (Medicare).So if your combined wages and net earnings from self-employment were less than $90,000, all of your net self-employment earningsare taxed at 15.3 percent.If net earnings from self-employment are greaterthan the excess of $90,000 over wages, only the amount equal to the excess istaxed at 15.3 percent; the rest is taxed at 2.9 percent.The instructions to Schedule SE tell you how to use either the nonfarm orfarm optional method to figure the tax if you have a loss or a small amount ofExample 6.2Jeff Ferd had net income from self-employment of $70,000 in 2005, andreceived $33,200 in wages subject to Social Security and Medicare taxes.Jeff s net earnings from self-employment are $64,645 ($70,000 × 0.9235).The maximum income subject to the 15.3% SE tax rate is $56,800 ($90,000 -$33,200).The tax at 15.3% is $8,690.The balance of Jeff s net self-employment earnings is taxed at 2.9%.That amount is $228 ($7,845 × 2.9%).That makes Jeff s total SE tax $8,918 ($8,690 + $228).One half of thisamount, or $4,459, is deductible on line 29 of Form 1040.See the computa-tion on page 2 of Schedule SE in Figure 6.1. SELF-EMPLOYMENT TAX103Schedule SE (Form 1040) 2005 Page 2Attachment Sequence No.17Name of person with self-employment income (as shown on Form 1040)Social security number of personJeff Ferd with self-employment income 999 88 7777Section B Long Schedule SEPart I Self-Employment TaxNote.If your only income subject to self-employment tax is church employee income, skip lines 1 through 4b.Enter -0- on line4c and go to line 5a.Income from services you performed as a minister or a member of a religious order is not church employeeincome.See page SE-1.A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but youhad $400 or more of other net earnings from self-employment, check here and continue with Part I1 Net farm profit or (loss) from Schedule F, line 36, and farm partnerships, Schedule K-1 (Form11065), line 15a.Note.Skip this line if you use the farm optional method.See page SE-32 Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065),line 15a (other than farming); and Schedule K-1 (Form 1065-B), box 9.Ministers and membersof religious orders, see page SE-1 for amounts to report on this line.See page SE-2 for other70,0002income to report.Note.Skip this line if you use the nonfarm optional method.See page SE-370,00033 Combine lines 1 and 24a 64,6454a If line 3 is more than zero, multiply line 3 by 92.35% (.9235).Otherwise, enter amount from line 34bb If you elect one or both of the optional methods, enter the total of lines 15 and 17 herec Combine lines 4a and 4b.If less than $400, do not file this schedule; you do not owe self-employment64,6454ctax.Exception.If less than $400 and you had church employee income, enter -0- and continue5a Enter your church employee income from Form W-2.Caution.See5apage SE-1 for definition of church employee income5bb Multiply line 5a by 92.35% (.9235).If less than $100, enter -0-6 64,6456 Net earnings from self-employment.Add lines 4c and 5b7 Maximum amount of combined wages and self-employment earnings subject to social security7 90,000tax or the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 20058a Total social security wages and tips (total of boxes 3 and 7 on Form(s)33,2008aW-2) and railroad retirement (tier 1) compensation8bb Unreported tips subject to social security tax (from Form 4137, line 9)33,2008cc Add lines 8a and 8b56,80099 Subtract line 8c from line 7.If zero or less, enter -0- here and on line 10 and go to line 1110 7,04310 Multiply the smaller of line 6 or line 9 by 12.4% (.124)11 1,87511 Multiply line 6 by 2.9% (.029)8,9181212 Self-employment tax.Add lines 10 and 11.Enter here and on Form 1040, line 5613 Deduction for one-half of self-employment tax.Multiply line 12 by50% (.5).Enter the result here and on Form 1040, line 2913Part II Optional Methods To Figure Net Earnings (See page SE-3.)Farm Optional Method.You may use this method only if:Your gross farm income1 was not more than $2,400 orYour net farm profits2 were less than $1,733.14 1,600 0014 Maximum income for optional methods15 Enter the smaller of: two-thirds (2 3) of gross farm income1 (not less than zero) or $1,600.Alsoinclude this amount on line 4b above 15Nonfarm Optional Method.You may use this method only if:Your net nonfarm profits3 were less than $1,733 and also less than 72.189% of your gross nonfarmincome4 andYou had net earnings from self-employment of at least $400 in 2 of the prior 3 years.Caution.You may use this method no more than five times.1616 Subtract line 15 from line 1417 Enter the smaller of: two-thirds (2 3) of gross nonfarm income4 (not less than zero) or the amounton line 16.Also include this amount on line 4b above 171 3From Sch.F, line 11, and Sch.K-1 (Form 1065), line 15b.From Sch.C, line 31; Sch.C-EZ, line 3; Sch.K-1 (Form 1065), line 15a; and Sch.K-1 (Form 1065-B), box 9.2 4From Sch.F, line 36, and Sch.K-1 (Form 1065), line 15a.From Sch.C, line 7; Sch.C-EZ, line 1; Sch.K-1 (Form 1065), line 15c; and Sch.K-1 (Form 1065-B), box 9.Schedule SE (Form 1040) 2005FIGURE 6.1 BUSINESS, SALES, AND USE TAXES104income from self-employment and you want to receive credit for Social Securitybenefit coverage.Federal Estimated Tax PaymentsEven though your final tax liability cannot be determined until you file yourincome tax return at the end of the year, the government wants you to payyour taxes in installments throughout the year [ Pobierz caÅ‚ość w formacie PDF ]