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Single member LLC with net profit under $400 can I enter income on the Schedule SE?

I would like to pay my social security and medicare taxes on my income but with all my deductions the business has, the schedule C, makes my over profit at a near loss or under $400 of profit. Can I enter a higher income amount in the Other SE NonFarm Profit (Loss) field in TurboTax and pay the taxes? It lets me enter the information and calculates it for me but I wasn't sure if I can do this.  The SSA says "Even if you don’t owe any income tax, you must complete Form 1040 and Schedule SE to pay self-employment Social Security tax. "

 

But the IRS says "You meet this requirement if your actual net earnings from self-employment were $400 or more in 2 of the 3 years before the year you use the nonfarm optional method.  I didn't select to use the optional method when it asked me in TurboTax but is what I am doing above considered this optional method?? What if its your first year in business?

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Accepted Solutions

Single member LLC with net profit under $400 can I enter income on the Schedule SE?

IsabellaG is correct.  However, there is an optional method for paying SE tax, if you're interested.  Here is a link to the instructions for Schedule SE.   Read them to see if you qualify.  If you do qualify; do you wish to use the optional method?

 

https://www.irs.gov/pub/irs-pdf/i1040sse.pdf

 

**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**

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5 Replies
IsabellaG
Employee Tax Expert

Single member LLC with net profit under $400 can I enter income on the Schedule SE?

You must report your income and expenses in full, and not report more net income than you actually had. If your net profit from your Schedule C is less than $400, you can't deduct less expenses or add more income just to pay Social Security Tax. You just don't owe it. Don't enter false information.

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Single member LLC with net profit under $400 can I enter income on the Schedule SE?

IsabellaG is correct.  However, there is an optional method for paying SE tax, if you're interested.  Here is a link to the instructions for Schedule SE.   Read them to see if you qualify.  If you do qualify; do you wish to use the optional method?

 

https://www.irs.gov/pub/irs-pdf/i1040sse.pdf

 

**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**
Hermlover
Returning Member

Single member LLC with net profit under $400 can I enter income on the Schedule SE?

agree. Choose the optional method of SE which gives you 4 quarters of coverage for Social Security purposes.

Single member LLC with net profit under $400 can I enter income on the Schedule SE?

This is where I was going with this and she seemed to completely omit that from her answer to me. It does say that you are basically choosing to pay tax on the current SSA required income for the year when using the optional method. Plus, there is the requirement that you NET at least $400 in prior years because they want you to be steadily be working as a self employed person to use this option. Where in the tax law does it say that I have report or take every single deduction available to me if I wanted to make sure my net for the year was above that $400 for the next year? It seems unfair to lose the ability to elect to pay the taxes and earn the full work credits for a year because you had to take all the deductions and your NET ended up being $276 for example. The SSA states that they don't care if you don't owe income tax to the IRS, they say you can still report income and pay SSA taxes in their literature so it is confusing.

Single member LLC with net profit under $400 can I enter income on the Schedule SE?


@catsatmyhome wrote:

Where in the tax law does it say that I have report or take every single deduction available to me if I wanted to make sure my net for the year was above that $400 for the next year?


You are required to file an accurate return, regardless, and you cannot artificially inflate (deflate) figures for the sole purpose of obtaining a better tax result. In any event, the following Code section is relevant to your exact situation.

 

§1.1402(a)-1

Definition of net earnings from self-employment.

(a) Subject to the special rules set forth in §§ 1.1402(a)-3 to 1.1402(a)-17, inclusive, and to the exclusions set forth in §§ 1.1402(c)-2 to 1.1402(c)-7, inclusive, the term “net earnings from self-employment” means:

(1) The gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by chapter 1 of the Code which are attributable to such trade or business...

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