Are Your Earnings Subject to Self-Employment Tax?

self_employment_tax

Self-employed persons are subject to a special tax to fund social security benefits under the Self- Employment Contributions Act. All self-employed persons, regardless of age, must file Schedule SE to compute the tax. For sole proprietors, SE tax is assessed on net earnings from self-employment, which is defined as gross income less allowable deductions from a taxpayer’s trade or business.

Trade or Business Requirement. To be engaged in a trade or business generally requires your continuous and regular involvement in the activity and the intent of making a profit. Thus, earned income received from an isolated or sporadic activity that differs from your regular trade or business is generally not subject to SE tax because it does not rise to the level of a trade or business. If your side work is in the same line as your regular job, you probably have income subject to SE tax. Side work does not necessarily need to be in the same line of work to constitute a trade or business. All facts and circumstances should be carefully reviewed considering the potential risks of taking a position contrary to that of the IRS.

Related Posts Plugin for WordPress, Blogger...
About Padgett Team

Our firm is a leader in outstanding accounting, tax payroll and business services. Our dedication to the 3 dominating business requirements of Professionalism, Timeliness and Excellence dictate the day-to day service we provide equally to each client. No small business is too small.

Facing a Tax Audit?
We can Help! Don't Delay!
Contact our Enrolled Agents today!!