Asheville Accounting and Taxes

How do you know if you need to file this form? .

The income requirement: if you have $400 or more of business income over and above your expenses, you need to file a Schedule C or C-EZ and a Schedule SE to pay self-employment tax, even if you would not otherwise have enough income to be required to file a tax return.  When you have $400 or more in profit during a single quarter you must also make estimated tax payments.

When you operate more than one business as a sole proprietorship, you will need to net their income together to determine whether you have met the $400 threshold. For example, if one business has a profit of $5,000 and another has a loss of $4,700, your net profit from both businesses is only $300 and you won't need to pay any self-employment tax for the year. We recommend that you do file a Schedule C and a Schedule SE.  When you do not make a profit in your business in at least 3 out of 5 years then it is considered a hobby and many of the expenses of the "business" will not be allowed by the IRS.

Although you may know exactly what your business earnings are for normal accounting purposes, if you're close to the $400 threshold or actually had a loss for the year, you'll need to use IRS rules to compute your net business income for tax purposes in order to know the exact amount.


Even when your business does have a loss for the year, consider filing a tax return anyway.

That way you can take advantage of the opportunity to carry losses back for two years and/or forward to future years, so you can deduct them in some other year(s) in which you do have a profit.

What is the self-employment tax?

You are self–employed for this purpose when you are a sole proprietor, an independent contractor, a partner in a partnership, a member of a single-member LLC or are otherwise in business for yourself. You usually must pay self–employment tax if you had net earnings from self–employment of more than $400. per quarter. Generally, earnings subject to self–employment taxes is 92.35% of your net earnings. Net earnings are calculated by subtracting ordinary and necessary trade or business expenses from your gross self-employment income. Remember you can be liable for paying self–employment tax even if you are currently receiving social security benefits.

If you had a small profit or net loss from your business but want to pay into the social security system, you may be eligible to use one of the two optional methods to compute your net earnings from self–employment. An optional method may increase your earned income credit or the child and dependent care credit.

The total self-employment tax rate is a percentage set by law of your net earnings from self–employment. This rate is the total of a percentage for Social Security and a percentage for Medicare. There is a maximum amount of net earnings subject to the social security tax that is set by law. All of your net earnings are subject to the Medicare tax. Self–employment tax is computed on Form 1040, Schedule SE .  We can prepare that form for you.  .

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