Self-Employment Profit or Loss

Self-employment profit or loss is the income you earn minus the expenses.  When your self-employment income is greater than your expenses there is a profit.

Conversely, when self-employment expenses are greater than income, there is a loss. Self-employed individuals pay self-employment tax (SE tax). SE tax is a Social Security and Medicare tax.


What is self-employment?

Self-employment means you are conducting a trade or business as a sole proprietor, a member of a partnership or in business for yourself. It involves the sales of products and services, conducting business as an independent contractor, consultant or freelancer, rental real estate and royalties, or other miscellaneous income.

Most importantly, we recommend that you keep documentation of each expense in order to track and accurately report each qualifying business expenses. You can report the following business expenses on a Schedule C to determine a profit or loss.

Business Expenses

Costs of Goods Sold

You can report the cost of purchasing products for manufacturing purposes or for resale as your business requires you to. This includes your beginning and ending inventory, raw materials, storage, labor costs etc.

General Business Expenses

Qualifying expenses relating to managing your business are deductible. This includes the following.

  • Expenses pertaining to general business expenses, travel and meals
  • Repairs
  • Maintenance of equipment or facility and vehicle
  • Equipment rentals
  • Real estate and interest
  • Staff and contract employee
  • Health and liability insurance etc.
Personal Health Insurance Expenses

Luckily, you can include the total health insurance premium you and your family paid out of pocket.

Business Use of Home

In the case that you use any part of your home to conduct your business, you can claim a deduction. In fact, you can even deduct your home office! For instance, it is calculated by the following:

  • Mortgage interest
  • Real estate taxes, insurance
  • Rent of your home
  • Use of utilities
  • The square foot of your home only used for business divided by the total square foot of your home
Casualty and Theft Loss

Losses related to your homes, household, or vehicles due to natural causes are casualties. However, an illegally obtained property is considered theft.

  • If your property isn’t destroyed, your casualty loss is lesser of the adjusted basis of property or decrease in its fair market value after the casualty.
  • Your theft loss is the adjusted basis of property.
  • Reduce losses by the expected cash value of the asset at the end of its life and by any insurance reimbursement.
  • If the loss exceeds your income you have a net operating loss (NOL).
Vehicle and Depreciation

If you used your personal vehicle for conducting business, you can deduct the actual expenses or take the standard mileage deduction. For example, you can report the following vehicle details.

  • Date the vehicle was placed in service
  • Gasoline costs
  • Parking fees
  • Tolls
  • Interest
  • Vehicle taxes
  • Other expenses
  • Total miles for the year and for business purposes

Unfortunately, miles driven from home to work and from a work destination to home does not account for “miles driven for business purposes.”

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