Do self-employment deductions only count towards reducing self-employment income? Or can they carry over to reduce my W2 income as well?

[nshin]

Example: Say I make $50,000 of W2 income at my primary job, and my total taxable income for 2017 comes out to $40,000.

If I also started a sole proprietorship in 2017 and only made $5,000 but had $7,000 of initial deductions/expenses/etc., then my self-employment taxable income would essentially be $0.

But would the extra $2,000 of self-employment deductions then carry over to further reduce my overall taxable income from $40k to $38k?

[MichaelL1 · Accepted solution]

You are looking at it correctly.

First the Self-Employment (SE) expenses are applied to SE income.  

Then in your example, you would have a -$2,000 for SE net income which would be added to the other income on the return.  So it would reduce that other income reported by $2,000.  

Note:  In the Self-Employed area you may see a "At Risk" question, you must be at risk to have a loss.  What this means is that you actually have to pay for the expenses incurred to get the loss.  

[nshin]

Thanks a lot Michael!

Though, I'm curious now if I made a mistake somewhere now... I had a rather substantial amount of self-employment deductions I filed, but they didn't seem to change my overall tax burden. Perhaps I missed that "at risk" portion.

[MichaelL1]

Click on this link and you should see the negative amount on the front of the working copy of the Form 1040.
Follow the instructions.  Now if you already paid you can just go to Pint and do a Print Preview.
 <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/1901539-how-do-i-preview-my-turbotax-online-return-before-filing">...>

[nshin]

I followed your instructions and I can see that Item12 "Business income or (loss). Attach Schedule C or C-EZ" is listed as 0. In the case I described, shouldn't this be a negative number?

Thanks again for your help on this!

[MichaelL1]

Go back to the Self Employed area as you are correct, it is not taking the loss and I bet it is the the At Risk question under Other Business Situations that needs to be answered correctly.  Good that you caught this.

[MichaelL1]

When you go back to the Self-Employment area, you will see Income, Expenses and Uncommon Situations, go to this area under Uncommon situations to Carryovers, limitations, and At Risk and towards the bottom you will see the one that needs to be checked for At Risk

[nshin]

Got it! That's what was missing. Thanks a lot!