No Self Employment Tax if Net Income is Negative?

[messner8000]

I started a small business (sole proprietorship) in 2021.  My expenses in 2021 exceed my revenue.  Accordingly, am I correct that I don't pay any self-employment tax (and so I don't need to fill out that part of TurboTax)? 

[Anonymous_]

If your net income is negative (i.e., you have a net loss), then you will not incur any self-employment tax liability.

[ThomasM125]

It is true that you won't pay any self-employment tax if you have a net loss on your self-employment income. I'm not familiar with the "self-employment tax" section in TurboTax. There is a self-employment section, and you should complete that section as you are supposed to report all of your business receipts and expenses on your tax return, even if you have a loss. Also, the loss may be a benefit to you as it will reduce your other income which may reduce your income tax.

[VolvoGirl]

Don't need to fill out what  part of Turbo Tax?   You need to fill out Schedule C and enter your income and expenses for Turbo Tax to calculate your gain or loss.  You only pay self employment tax on a Net Profit of $400 or more.   And a loss will be deducted from your other income.  

But Some expenses, such as home office or section 179 depreciation can only be used to reduce your schedule C taxable income to zero, and not to create a loss. Excess deductions for these carry over to the next year.  And you have to answer yes to both questions about exclusive and regular use, not just one.  The area of your home office must be used regularly and exclusively for business to deduct it.

 FYI - You pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C.  You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400).  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

[messner8000]

Thanks @VolvoGirl.  To answer your question, there is a section in TurboTax called "Business Taxes" and one of the sub-options is "Self-Employment Tax." When I click on it, it says I am not currently required to pay self-employment tax.  It doesn't say so, but I assume this is because the expenses for my sole proprietorship exceeded my revenue for 2021. But then it asks me if I "want to work on [my] self-employment tax anyway" - and I'm not sure how to respond.  In other words, do I not fill this out because I had a net loss. Or do I fill it out because I want the loss to be able to offset my spouse's (W2) income. ...

[Anonymous_]

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@messner8000 wrote:

But then it asks me if I "want to work on [my] self-employment tax anyway" - and I'm not sure how to respond.  In other words, do I not fill this out because I had a net loss. 

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Correct, you should answer "No" (click the "No" button) unless you have any of the income listed in the Guidance section (see screenshot).