TN 11 (09-92)
RS 02505.130 Net Loss from SE - Relationship to SEI Exclusion
The SEI exclusion provision does not permit an artifical “loss” to be credited and deducted from wages or other NESE. This policy means that if income is excluded from gross receipts, any expenses in connection with that same income cannot be deducted from the zero gross or reduced gross.
In 1991, John earns wages of $12,080 as an employee. In addition, he is SE in a small business enterprise. He has 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 him to exclude the $20,000 gross, he 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:
|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|
In 1991, Bob, a SE farmer, received gross income of $40,000. His farm expenses for 1991 were $30,000 and the NESE was $9,235. He establishes that $20,000 of the gross was from the sale of a crop raised in a prior year, before his 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 his 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.
|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) |