Handling Positive Taxable Income but Negative Self Employment Income

[okron38]

I"m a Notary filing a partnership return (1065).  My Taxable Income is positive, lets say I have $40,000 of Revenue and $1,000 of Expenses for a Net Taxable Income of $25,000.  Of the $40,000 of Revenue I have $30,000 of Notarial Income that is exempt from Self Employment taxes.  When I enter my Self Employment adjustment amount of $30,000 that leaves  ($5000) of Self Employment Income.  Turbotax did not flag this but wanted to make sure I should leave the negative Self Employment income ($5000) as it is shown or if I should reduce my adjustment amount to zero out my net...ie show only $25,000 of Self Employment adjustment.  One additional note, I do have another pass-thru business that will have positive Self Employment income.  I"m not sure of the amount but the second business would benefit from the negative self employment amount (assuming they get netted when both businesses pass-thru to my personal return.

Am I good leaving the  negative SE income alone?

Thanks

[ThomasM125]

It would depend on what the expenses relate to. I suggest you net the non-notary income with the expenses that were ordinary and necessary to generate that income and use that net income as your self-employment income. If that amount is negative, then you can report it as such and use it to reduce your other self-employment income.

[okron38]

It's all Notarial income, it's just that only a portion of it is deductible for SE (as shown in my example).  All the Expenses are Ordinary and Necessary for a Notary business.  Based on your last statement it sounds like it isn't a problem to have negative SE income with positive Taxable income.  Perhaps others will chime in as well.

[AliciaP1]

For considering self-employment income on the Schedule SE, your full net profit from Notorial services is exempt from self-employment taxes.  As for determining the amounts in your example, it depends if you're trying to complete your 1065 or input your K-1 from the 1065 into your personal tax return.  Since you're discussing the SE taxes, I'm assuming you are entering your K-1.

At the end of the step-by-step to enter your K-1 in TurboTax, you can search "sch se" and there is an option to adjust your income from Notary services.  If that is entered there, TurboTax will correctly complete your Schedule SE.  The Schedule SE will show the total income then back out the Notary income and if that results in a loss the form will show $0 SE Tax and the form is complete.

[okron38]

@AliciaP1 

I am still working on business returns and have not gotten to my personal return.  It was my assumption that the bottom line amounts on my SE Earnings Worksheet (in my Notary business 1065 return) would be loaded into my personal return for calculating SE tax.  That worksheet currently shows a negative amount for this business.  If that is not an issue I should be worried about because either it flows thru to my personal return and adjusts itself to zero (because I can't have negative SE income) or it flows thru as a negative amount and offsets other flow-thru positive SE income then I'm fine.  Maybe I jumped the gun asking but just wanted to avoid issues if I could... am I OK as it stands now?

[AliciaP1 · Accepted solution]

Yes, you are OK as it stands!  The worksheet is just to show how the calculation for your self-employed income works.  The info that populates your personal return and therefore the Schedule SE is the K-1 Form 1065.

[ishsn0]

Where do I add the Notary services that are not subject to self-employment tax in Turbo tax?  I have read some of the comments and all it says to go to "Business and Income"  I put in my total income and my expenses but it does ask about notarial fees.

[AnnetteB6]

There is a specific section within your return where you can enter the net income earned as a notary so that the self-employment tax can be adjusted and not included in the self-employment tax calculation.  

If you are using the TurboTax CD/downloaded Home and Business version, use these steps: 

• Go to the Business tab at the top of the screen
• Scroll to the Business Taxes section
• Click Start or Update beside Business Taxes
• Click Start or Update beside Self-Employment tax
• Click Make Adjustments and enter your net income earned as a notary

If you are using the TurboTax Online Self-Employed version, use these steps:

• Go to Other Tax Situations at the top of the screen
• Scroll to Business Taxes and Deductions section
• Click Start or Revisit beside Self-Employment tax
• Click Make Adjustments and enter your net income earned as a notary

@ishsn0