E-6200, Net Self-Employment Earnings

Revision 09-4; Effective December 1, 2009

Net earnings (gross income less allowable deductions) are used in budgeting. Net earnings from self-employment also include any profit or loss incurred in partnership agreements (within a self-employment related context). Verified net losses from self-employment can be deducted from other earned income received in the same year the loss was incurred.

In a couple case, the loss can be deducted from either spouse's earned income, regardless of which spouse incurred the loss.

Losses cannot be deducted from unearned income or carried over from a previous period.

 

E-6210 Self-Employment Expenses

Revision 21-2; Effective June 1, 2021

The chart below contains a list of common types of expenses related to self-employment income. The chart is not intended to be all-inclusive. A policy clearance request should be submitted when questionable deductions arise or to determine how to budget self-employment expenses not listed in the chart.

Self-Employment Expenses

Allowable self-employment expenses are based on costs that can be deducted from federal income taxes according to the IRS Schedule C, Form 1040 - Profit or Loss from Business.

Expense Types MEPD Programs
Advertising Allowed
Car and truck expenses Allowed
Commissions and fees Allowed
Contract labor Allowed
Costs not related to self-employment Non-Allowed
Costs related to producing income gained from illegal activities, such as prostitution and the sale of illegal drugs Non-Allowed
Depletion Allowed
Depreciation Allowed
Employee benefit programs Allowed
Insurance Allowed
Interest * Allowed
Legal and professional services Allowed
Net loss that occurred in a previous period Non-Allowed
Office expense Allowed
Pension and profit-sharing plans Allowed
Rent or lease ** Allowed
Repairs and maintenance Allowed
Supplies Allowed
Taxes and licenses Allowed
Travel, meals, and entertainment Allowed
Travel to and from place of business Non-Allowed
Utilities Allowed
Wages Allowed
Other expenses Allowed

*Interest includes mortgage (paid to banks, etc.) or other interest.

**Rent or lease may include rent of vehicles, machinery, equipment, or other business property.

When determining transportation costs, the person may choose to use the standard mileage reimbursement rate of 56 cents per mile instead of keeping track of actual expenses.

The IRS Schedule F, Form 1040 - Profit or Loss from Farming, lists the deductible expenses for farm income.