Example 1:
In 1991, John earns wages of $12,080 as an employee. In addition, they are SE in a
small business enterprise. They have a gross income of $20,000 from the business and
allowable expenses of $15,000 resulting in NESE of $4,617.50 ($5,000 ×.9235).
If John meets the income exclusion rule allowing them to exclude the $20,000 gross,
they cannot then allege a $15,000 loss to be deducted from gross wages. In this situation
the result of the exclusion from gross income is:
Item |
Amount |
Total earnings for deductions |
$12,080 (from wages) |
Excess earnings (age 62) for deductions |
$2,500 |
NESE for deductions |
NONE |
NESE for SE tax purposes |
$4,617.50 |
NESE for coverage and computations |
$4,618.00 (IRS) rule - raise to next dollar |
Example 2:
In 1991, Bob, a SE farmer, received gross income of $40,000. Their farm expenses for
1991 were $30,000 and the NESE was $9,235. They established that $20,000 of the gross
was from the sale of a crop raised in a prior year, before their initial month of
entitlement, and can be excluded. Excluding the income from the carryover crop reduces
the gross to $20,000. Deducting the $30,000 in expense results in a loss of $10,000,
which can be deducted from wages or other income from self-employment if applicable
to determine their total earnings for deduction purposes.
The $30,000 in business expenses can be deducted because they are in connection with
the $20,000 gross actually earned in 1991. None of these expenses is in connection
with the carryover crop.
Item |
Amount |
Total earnings for deductions |
NONE |
NESE for deductions |
NONE (there is a net loss) |
NESE for SE tax purposes |
$9,235 |
SEI for coverage and computation |
$9,236 (IRS rule - raise to next dollar) |