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Your actual nonfarm net earnings are your nonfarm net John's actual net earnings for 2019 are $1,108 ($1,200
earnings figured using the regular method, explained ear- × 0.9235). Because his net profit is less than $5,891 and
lier. less than 72.189% of his gross income, he can use the
nonfarm optional method to figure net earnings of $5,440.
Gross nonfarm income of $8,160 or less. The follow- Because these net earnings are higher than his actual net
ing examples illustrate how to figure net earnings when earnings, he can report net earnings of $5,440 for 2019.
gross nonfarm income is $8,160 or less.
Example 2. Net nonfarm profit not less than
Example 1. Net nonfarm profit less than $5,891 $5,891. Assume that in Example 1 John's net profit is
and less than 72.189% of gross nonfarm income. $6,100. He must use the regular method. He cannot use
Ann Green runs a craft business. Her actual net earnings the nonfarm optional method because his net nonfarm
from self-employment were $800 in 2017 and $900 in profit is not less than $5,891.
2018. She meets the test for being self-employed on a
regular basis. She has used the nonfarm optional method Example 3. Net loss from a nonfarm business. As-
less than 5 years. Her gross income and net profit in 2019 sume that in Example 1 John has a net loss of $700. He
are as follows. can use the nonfarm optional method and report $5,440
as his net earnings from self-employment.
Gross nonfarm income . . . . . . . . . . . . . . . . . . . . . . $5,400
Net nonfarm profit . . . . . . . . . . . . . . . . . . . . . . . . . $1,200 Farm Optional Method
Ann's actual net earnings for 2019 are $1,108 ($1,200 Use the farm optional method only for earnings from a
× 0.9235). Because her net profit is less than $5,891 and farming business. See Pub. 225 for information about this
less than 72.189% of her gross income, she can use the method.
nonfarm optional method to figure net earnings of $3,600
( /3 × $5,400). Because these net earnings are higher than Using Both Optional Methods
2
her actual net earnings, she can report net earnings of
$3,600 for 2019. If you have both farm and nonfarm earnings, you may be

Example 2. Net nonfarm profit less than $5,891 but able to use both optional methods to determine your net
not less than 72.189% of gross nonfarm income. As- earnings from self-employment.
sume that in Example 1 Ann's gross income is $1,000 and To figure your net earnings using both optional meth-
her net profit is $800. She must use the regular method to ods, you must:
figure her net earnings. She cannot use the nonfarm op-
tional method because her net profit is not less than • Figure your farm and nonfarm net earnings separately
72.189% of her gross income. under each method. Do not combine farm earnings
with nonfarm earnings to figure your net earnings un-
Example 3. Net loss from a nonfarm business. As- der either method.
sume that in Example 1 Ann has a net loss of $700. She • Add the net earnings figured under each method to ar-
can use the nonfarm optional method and report $3,600 rive at your total net earnings from self-employment.
( /3 × $5,400) as her net earnings.
2
You can report less than your total actual farm and non-
Example 4. Nonfarm net earnings less than $400. farm net earnings but not less than actual nonfarm net
Assume that in Example 1 Ann has gross income of $525 earnings. If you use both optional methods, you can report
and a net profit of $175. In this situation, she would not no more than $5,440 as your combined net earnings from
pay any SE tax under either the regular method or the self-employment.
nonfarm optional method because her net earnings under
both methods are less than $400. Example. You are a self-employed farmer. You also
operate a retail grocery store. Your gross income, actual
Gross nonfarm income of more than $8,160. The fol- net earnings from self-employment, and optional farm and
lowing examples illustrate how to figure net earnings when optional nonfarm net earnings from self-employment are
gross nonfarm income is more than $8,160. shown in Table 10-2.

Example 1. Net nonfarm profit less than $5,891
and less than 72.189% of gross nonfarm income.
John White runs an appliance repair shop. His actual net
earnings from self-employment were $10,500 in 2017 and
$9,500 in 2018. He meets the test for being self-employed
on a regular basis. He has used the nonfarm optional
method less than 5 years. His gross income and net profit
in 2019 are as follows.

Gross nonfarm income . . . . . . . . . . . . . . . . . . . . . . $12,000
Net nonfarm profit . . . . . . . . . . . . . . . . . . . . . . . . . $1,200

Chapter 10 Self-Employment (SE) Tax Page 43