If you are not an employee and have income from doing work in a business, it is self-employment income. If some of those 'cash deposits' are for the K-1 business, then those amounts should be included with that K-1 which will reduce the loss on the K-1. However, if the income is for a separate business, it should be reported on a business (Schedule C) form. If you have expenses to offset the income, those expenses can go on that same Schedule C which will reduce your business income and related SE taxes.
I think there may be some confusion with this income. If it is income from the K-1 business, the K-1 should be corrected to include the income. If it is for a separate business, the income still needs to be reported and if you did work for the income (sounds like you did), the income is taxed as self-employment income.
The SE tax is not a penalty. It is your portion of social security and medicare taxes. Normally your employer pays half and you pay the other half. But as a self-employed taxpayer, you pay both portions. Only business expenses related to that business can reduce profits and SE taxes. Each business activity is treated separately for the purposes of calculating the SE tax. However, all of your self-employment activities will be netted on Schedule SE so you pay the minimal SE tax. Box 14 (code A) needs to have an entry for SE income (or loss) to be included on Schedule SE.
What is the self-employment tax?
@convertibledreaming
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