Page 257 - Individual Forms & Instructions Guide

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
self-employment may be used to figure There is no limit on how many years more in 2 of the 3 years before the year
your self-employed health insurance de- you can use this method. you use the nonfarm optional method.
duction. Under this method, report in Part II, The net earnings of $400 or more could
Other items affected by adjusted line 15, two-thirds of your gross farm in- be from either farm or nonfarm earn-
gross income (AGI). Using the option- come, up to $6,040, as your net earn- ings, or both. The net earnings include
al methods may decrease your AGI, ings. This method can increase or de- your distributive share of partnership in-
which may affect your eligibility for crease your net earnings from farm come or loss subject to SE tax.
credits, deductions, or other items that self-employment even if the farming You can use the nonfarm optional
are subject to an AGI limit. Figure your business had a loss. method to figure your earnings from
AGI with and without using the optional For a farm partnership, figure your self-employment for only 5 years. The 5
methods to see if the optional methods share of gross income based on the part- years don’t have to be consecutive.
will benefit you. nership agreement. With guaranteed Under this method, report in Part II,
Using the optional methods as payments, your share of the partnership's line 17, two-thirds of your gross non-
! described above may be benefi- gross income is your guaranteed pay- farm income, up to the amount on
CAUTION cial, but they may also increase ments plus your share of the gross in- line 16, as your net earnings. But you
your SE tax. come after it is reduced by all guaran- can’t report less than your actual net
teed payments made by the partnership. earnings from nonfarm self-employ-
If you were a limited partner, include ment.
Changing Your Method only guaranteed payments for services Figure your share of gross income
You can change the method used to fig- you actually rendered to or on behalf of from a nonfarm partnership in the same
ure your net earnings from self-employ- the partnership. manner as a farm partnership. See Farm
ment after you file your return. That is, Optional Method, earlier, for details.
you can change from the regular to the Nonfarm Optional Method
optional method or from the optional to You may be able to use this method to Using Both Optional Methods
the regular method. To do this, file Form figure your net earnings from nonfarm
1040-X. self-employment if your net nonfarm If you can use both methods, you can re-
port less than your total actual net earn-
profits were less than $6,540 and also ings from farm and nonfarm self-em-
Farm Optional Method less than 72.189% of your gross non- ployment, but you can’t report less than
You may use this method to figure your farm income. Net nonfarm profits are your actual net earnings from nonfarm
net earnings from farm self-employment the total of the amounts from: self-employment alone.
if your gross farm income was $9,060 or • Schedule C (Form 1040), line 31; If you use both methods to figure net
less or your net farm profits were less and earnings, you can’t report more than
than $6,540. Net farm profits are: • Schedule K-1 (Form 1065), $6,040 of net earnings from self-em-
• The total of the amounts from box 14, code A (from other than farm ployment.
Schedule F (Form 1040), line 34, and partnerships).
Schedule K-1 (Form 1065), box 14, To use this method, you must also be
code A, minus regularly self-employed. You meet this
• The amount you would have en- requirement if your actual net earnings
tered on Schedule SE, line 1b, had you from self-employment were $400 or
not used the optional method.

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