Yes, if you intend to use Schedule C, you will need to pay self-employment tax. Your self employment tax is determined from what your net income is after you enter your income - expenses. For an example, if your net earnings are $10,000, your self -employment is calculated by the following example.
- $10,000 X .9235 = $9235
- $9235 X .153 = $1413 (This is the self-employment tax on $10,000 worth of net income.
With this said, a Schedule C is only generated from earned income. Substitute payments are not earned income but are payments of dividends or interest on securities that you own. If your securities are held in "street name" by your brokerage firm, the brokerage may "lend" them to someone who sells short. This is why the program never asked you if you intended to make money. it would have prompted you if you reported the substitute payments in Box 3, which would have been incorrect.
If these are on loan when the dividend or interest is paid out (goes ex-dividend), you would be paid an amount to substitute for the dividends or interest you're entitled to as the real owner. This is not earned income but something that is generated from a passive activity. I would use caution and not use a Schedule C even though this may be a normal business activity that you engage in. This could raise a red flag with the IRS.
As far as deducting the business investment expense, business investment expenses use to be reported as an itemized expense on Schedule A but are no longer allowed but may be allowed in the state where you live.
@Ionnowhy
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