U.S. Individual Income Tax Return

Department of the Treasury
Internal Revenue Service

2012 Instructions for Schedule SE (Form 1040)
Self-Employment
Tax

Use Schedule SE (Form 1040) to figure the tax due on net earnings from self-employment. The Social Security Administration uses the information from Schedule SE to
figure your benefits under the social security program. This tax applies no matter how
old you are and even if you are already getting social security or Medicare benefits.
Additional information. See Pub. 225 or Pub. 334.

Section references are to the Internal
Revenue Code unless otherwise noted.

Who Must Pay
Self-Employment (SE) Tax

Future Developments

Self-Employed Persons

For the latest information about developments related to Schedule SE (Form
1040) and its instructions, such as legislation enacted after they were published,
go to www.irs.gov/form1040.

You must pay SE tax if you had net
earnings of $400 or more as a self-employed person. If you are in business
(farm or nonfarm) for yourself, you are
self-employed.
You must also pay SE tax on your
share of certain partnership income and
your guaranteed payments. See Partner­
ship Income or Loss, later.

What's New
Maximum income subject to social se­
curity tax. For 2012, the maximum
amount of self-employment income subject to social security tax is $110,100.

General Instructions
Who Must File Schedule SE
You must file Schedule SE if:
The amount on line 4 of Short
Schedule SE or line 4c of Long Schedule SE is $400 or more, or
You had church employee income
of $108.28 or more. Income from services you performed as a minister or a
member of a religious order is not
church employee income. See Employ­
ees of Churches and Church Organiza­
tions.
Note. Even if you had a loss or a small
amount of income from self-employment, it may be to your benefit to file
Schedule SE and use either "optional
method" in Part II of Long Schedule SE
(discussed later).
Exception. If your only self-employment income was from earnings as a
minister, member of a religious order, or
Christian Science practitioner, see Min­
isters and Members of Religious Orders.

Employees of Churches and
Church Organizations
If you had church employee income of
$108.28 or more, you must pay SE tax.
Church employee income is wages you
received as an employee (other than as a
minister or member of a religious order)
of a church or qualified church-controlled organization that has a certificate in
effect electing an exemption from employer social security and Medicare taxes.
Ministers and Members of
Religious Orders
In most cases, you must pay SE tax on
salaries and other income for services
you performed as a minister, a member
of a religious order who has not taken a
vow of poverty, or a Christian Science
practitioner. But if you filed Form 4361
and received IRS approval, you will be
exempt from paying SE tax on those net
earnings. If you had no other income
subject to SE tax, enter “Exempt—Form
4361” on Form 1040, line 56, or Form
1040NR, line 54. However, if you had
other earnings of $400 or more subject
to SE tax, see line A at the top of Long
Schedule SE.
SE-1

Aug 08, 2012

Cat. No. 24334P

If you have ever filed Form
2031 to elect social security
CAUTION
coverage on your earnings as
a minister, you cannot revoke that elec­
tion.

!

If you must pay SE tax, include this
income on either Short or Long Schedule SE, line 2. But do not report it on
Long Schedule SE, line 5a; it is not considered church employee income. Also,
include on line 2:
The rental value of a home or an
allowance for a home furnished to you
(including payments for utilities), and
The value of meals and lodging
provided to you, your spouse, and your
dependents for your employer's convenience.
However, do not include on line 2:
Retirement benefits you received
from a church plan after retirement, or
The rental value of a home or an
allowance for a home furnished to you
(including payments for utilities) after
retirement.
If you were a duly ordained minister
who was an employee of a church and
you must pay SE tax, the unreimbursed
business expenses that you incurred as a
church employee are allowed only as an
itemized deduction for income tax purposes. However, when figuring SE tax,
subtract on line 2 the allowable expenses
from your self-employment earnings and
attach an explanation.
If you were a U.S. citizen or resident
alien serving outside the United States
as a minister or member of a religious
order and you must pay SE tax, you cannot reduce your net earnings by the foreign earned income exclusion or the foreign housing exclusion or deduction.
See Pub. 517 for details.

Members of Certain Religious
Sects
If you have conscientious objections to
social security insurance because of
your membership in and belief in the
teachings of a religious sect recognized
as being in existence at all times since
December 31, 1950, and which has provided a reasonable level of living for its
dependent members, you are exempt
from SE tax if you received IRS approval by filing Form 4029. In this case, do
not file Schedule SE. Instead, enter “Exempt—Form 4029” on Form 1040,
line 56, or Form 1040NR, line 54. See
Pub. 517 for details.
U.S. Citizens Employed by
Foreign Governments or
International Organizations
You must pay SE tax on income you
earned as a U.S. citizen employed by a
foreign government (or, in certain cases,
by a wholly owned instrumentality of a
foreign government or an international
organization under the International Organizations Immunities Act) for services
performed in the United States, Puerto
Rico, Guam, American Samoa, the
Commonwealth of the Northern Mariana
Islands, or the U.S. Virgin Islands. Report income from this employment on
either Short or Long Schedule SE,
line 2. If you performed services elsewhere as an employee of a foreign government or an international organization,
those earnings are exempt from SE tax.
Exception—Dual citizens. A person
with dual U.S.-foreign citizenship is
generally considered to be a U.S. citizen
for social security purposes. However, if
you are a U.S. citizen and also a citizen
of a country with which the United
States has a bilateral social security
agreement, other than Canada or Italy,
your work for the government of that
foreign country is always exempt from
U.S. social security taxes. For further information about these agreements, see
the exception shown in the next section.
U.S. Citizens or Resident Aliens
Living Outside the United States
If you are a self-employed U.S. citizen
or resident alien living outside the United States, in most cases you must pay
SE tax. You cannot reduce your foreign

earnings from self-employment by your
foreign earned income exclusion.
Exception. The United States has social
security agreements with many countries
to eliminate dual taxes under two social
security systems. Under these agreements, you must generally pay social security and Medicare taxes to only the
country you live in.
The United States now has social security agreements with the following
countries: Australia, Austria, Belgium,
Canada, Chile, Czech Republic, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland,
Portugal, South Korea, Spain, Sweden,
Switzerland, and the United Kingdom.
Additional agreements are expected in
the future.
If you have questions about international social security agreements, you
can:
1. Visit the Social Security Administration's (SSA's) International Programs
website at www.socialsecurity.gov/inter­
national;
2. Call the SSA's Office of International Programs at:
a. (410) 965-3322 for questions on
benefits under agreements, or
b. (410) 965-7306 for questions on
the coverage rules of the agreements; or
3. Write to:
a. Social Security Administration,
Office of International Programs, P.O.
Box 17741, Baltimore, MD 21235-7741
USA for information about an agreement, or
b. Social Security Administration,
OIO—Totalization, P.O. Box 17769,
Baltimore, MD 21235-7769 USA for information about a claim for benefits.
If your self-employment income is
exempt from SE tax, you should get a
statement from the appropriate agency
of the foreign country verifying that
your self-employment income is subject
to social security coverage in that country. If the foreign country will not issue
the statement, contact the SSA at the address shown in (3a) above. Do not complete Schedule SE. Instead, attach a
copy of the statement to Form 1040 and
enter “Exempt, see attached statement”
on Form 1040, line 56.

SE-2

Nonresident Alien
If you are a self-employed nonresident
alien living in the United States, you
must pay SE tax if an international social security agreement in effect determines that you are covered under the
U.S. social security system. See Excep­
tion under U.S. Citizens or Resident Ali­
ens Living Outside the United States,
earlier, for information about international social security agreements. If your
self-employment income is subject to
SE tax, complete Schedule SE and file it
with your Form 1040NR.
Chapter 11 Bankruptcy Cases
While you are a debtor in a chapter 11
bankruptcy case, your net profit or loss
from self-employment (for example,
from Schedule C or Schedule F) will not
be included in your Form 1040 income.
Instead, it will be included on the income tax return (Form 1041) of the
bankruptcy estate. However, you (not
the bankruptcy estate) are responsible
for paying SE tax on your net earnings
from self-employment.
Enter on the dotted line to the left of
Schedule SE, line 3, “Chap. 11 bankruptcy income” and the amount of your
net profit or (loss). Combine that
amount with the total of lines 1a, 1b, and
2 (if any) and enter the result on line 3.
For other reporting requirements, see
Chapter 11 Bankruptcy Cases in the instructions for Form 1040.

More Than One Business
If you had two or more businesses, your
net earnings from self-employment are
the combined net earnings from all of
your businesses. If you had a loss in one
business, it reduces the income from another. Figure the combined SE tax on
one Schedule SE.

Joint Returns
Show the name of the spouse with
self-employment income on Schedule SE. If both spouses have self-employment income, each must file a separate Schedule SE. However, if one
spouse qualifies to use Short Schedule SE (front of form) and the other
must use Long Schedule SE (back of
form), both can use the same form. One
spouse should complete the front and the
other the back.

Include the total profits or losses
from all businesses on Form 1040. Enter
the combined SE tax on Form 1040,
line 56.

Community Income
If any of the income from a business (including farming) is community income,
then the income and deductions are reported based on the following.
If only one spouse participates in
the business, all of the income from that
business is the self-employment earnings of the spouse who carried on the
business.
If both spouses participate, the income and deductions are allocated to the
spouses based on their distributive
shares.
If either or both you and your
spouse are partners in a partnership, see
Partnership Income or Loss, later.
If you and your spouse elected to
treat the business as a qualifying joint
venture, see Qualified Joint Ventures,
later.
Married filing separately. If you and
your spouse had community income and
file separate returns, attach Schedule SE
to the return of the spouse with the
self-employment income. Also, attach
Schedule(s) C, C-EZ, or F (showing the
spouse's share of community income
and expenses) to the return of each
spouse.
If you are the spouse who carried on
the business, you must include on
Schedule SE, line 3, the net profit or
(loss) reported on the other spouse's
Schedule C, C-EZ, or F (except in those
cases described later under Income and
Losses Not Included in Net Earnings
From Self­Employment). Enter on the
dotted line to the left of Schedule SE,
line 3, “Community income taxed to
spouse” and the amount of any net profit
or (loss) allocated to your spouse as
community income. Combine that
amount with the total of lines 1a, 1b, and
2 and enter the result on line 3.
If you are not the spouse who carried
on the business and you had no other income subject to SE tax, enter “Exempt
community income” on Form 1040,
line 56, or Form 1040NR, line 54. Do
not file Schedule SE. However, if you
had $400 or more of other earnings subject to SE tax, include on Schedule SE,
line 1a or 2, the net profit or (loss) from

Schedule(s) C, C-EZ, or F allocated to
you as community income. Also, enter
on the dotted line to the left of Schedule SE, line 3, “Exempt community income” and the allocated amount. If that
amount is a net profit, subtract it from
the total of lines 1a, 1b, and 2, and enter
the result on line 3. If that amount is a
loss, treat it as a positive amount, add it
to the total of lines 1a, 1b, and 2, and enter the result on line 3.
Community income included
on Schedule(s) C, C­EZ, or F
CAUTION
must be divided for income tax
purposes based on the community prop­
erty laws of your state. See Pub. 555 for
more information.

!

Qualified Joint Ventures
If you and your spouse materially participate (see Material participation in the
2012 Instructions for Schedule C) as the
only members of a jointly owned and
operated business, and you file a joint
return for the tax year, you can make a
joint election to be taxed as a qualified
joint venture instead of a partnership.
To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the
business between you and your spouse
in accordance with your respective interests in the venture. Each of you must file
a separate Schedule C, C-EZ, or F. On
each line of your separate Schedule C,
C-EZ, or F, you must enter your share of
the applicable income, deduction, or
loss. Each of you also must file a separate Schedule SE to pay SE tax, as applicable.
For more information on qualified
joint ventures, go to IRS.gov. Enter
“qualified joint venture” in the search
box and select “Election for Husband
and Wife Unincorporated Businesses.”
Rental real estate business. If you and
your spouse make the election for your
rental real estate business, the income
generally is not subject to SE tax. To indicate that election, be sure to check the
“QJV” box in Part I, line 2, of each
Schedule E that the rental property is listed on. Do not file Schedule SE unless
you have other income subject to SE tax.
For an exception to this income not being subject to SE tax, see item 3 under
Other Income and Losses Included in

SE-3

Net Earnings From Self­Employment,
later).
If the election is made for a farm
rental business that is not included in
self-employment, file two Forms 4835,
Farm Rental Income and Expenses.

Fiscal Year Filers
If your tax year is a fiscal year, use the
tax rate and earnings base that apply at
the time the fiscal year begins. Do not
prorate the tax or earnings base for a fiscal year that overlaps the date of a rate
or earnings base change.

Line Instructions
Read the flowchart on page 1 of Schedule SE to see if you can use Section
A—Short Schedule SE, or if you must
use Section B—Long Schedule SE. For
either section, you will need to know
what your net earnings from self-employment are. To find out what is included as net earnings from self-employment, see Net Earnings From Self­Em­
ployment.

TIP

Enter all negative amounts in
parentheses.

You Have Only Church
Employee Income Subject
to SE Tax
If your only income subject to SE tax is
church employee income (described earlier under Employees of Churches and
Church Organizations), skip lines 1
through 4b. Enter -0- on line 4c and go
to line 5a.
Note. Income from services you perform as a minister or member of a religious order is not church employee income.

Line 1b (Short or Long
Schedule SE)
If you were receiving social security retirement or social security disability
benefits at the time you received your
Conservation Reserve Program (CRP)
payment(s), enter the amount of your
taxable CRP payment(s) on line 1b.
These payments are included on Schedule F, line 4b, or listed on Schedule K-1
(Form 1065), box 20, code Y.

Line 4 (Short Schedule SE)
If line 4 is less than $400 and you have
an amount on line 1b, combine lines 1a
and 2.
If the total of lines 1a and 2 is $434
or more, file Schedule SE (completed
through line 4) with your tax return. Enter -0- on Form 1040, line 56, or Form
1040NR, line 54.
If the total of lines 1a and 2 is less
than $434, do not file Schedule SE unless you choose to use an optional method for figuring your SE tax.

Lines 4a Through 4c (Long
Schedule SE)
If both lines 4a and 4c are less than $400
and you have an amount on line 1b,
combine lines 1a and 2.
If the total of lines 1a and 2 is $434
or more, file Schedule SE (completed
through line 4c) with your tax return.
Enter -0- on Form 1040, line 56,* or
Form 1040NR, line 54.*
If the total of lines 1a and 2 is less
than $434, do not file Schedule SE unless you choose to use an optional method to figure your SE tax.
*If you also have church employee in­
come (described earlier under Employees of Churches and Church Organizations), also complete lines 5a and 5b.
Complete the rest of Schedule SE, as ap­
propriate.

Net Earnings From
Self-Employment
In most cases, net earnings include your
net profit from a farm or nonfarm business.

Partnership Income or Loss
If you were a general or limited partner
in a partnership, include on line 1a or
line 2, whichever applies, the amount of
net earnings from self-employment from
Schedule K-1 (Form 1065), box 14,
code A, and Schedule K-1 (Form
1065-B), box 9, code J1. General partners should reduce this amount by certain expenses before entering it on
Schedule SE. See your Schedule K-1 instructions. If you reduce the amount you
enter on Schedule SE, you must attach
an explanation. Limited partners include
only guaranteed payments for services
actually rendered to or on behalf of the
partnership.

If a partner died and the partnership
continued, include in self-employment
income the deceased's distributive share
of the partnership's ordinary income or
loss through the end of the month in
which he or she died. See section
1402(f).
If you were married and both you and
your spouse were partners in a partnership, each of you must report your net
earnings from self-employment from the
partnership. Each of you must file a separate Schedule SE and report the partnership income or loss on Schedule E
(Form 1040), Part II, for income tax purposes. If only one of you was a partner
in a partnership, the spouse who was the
partner must report his or her net earnings from self-employment from the
partnership.
Community income. Your own distributive share of partnership income is included in figuring your net earnings
from self-employment. Unlike the division of that income between spouses for
figuring income tax, no part of your
share can be included in figuring your
spouse's net earnings from self-employment.

Share Farming
You are considered self-employed if you
produced crops or livestock on someone
else's land for a share of the crops or
livestock produced (or a share of the
proceeds from the sale of them). This
applies even if you paid another person
(an agent) to do the actual work or management for you. Report your net earnings for income tax purposes on Schedule F (Form 1040) and for SE tax purposes on Schedule SE. See Pub. 225 for
details.

Other Income and Losses
Included in Net Earnings
From Self-Employment
1. Rental income from a farm if, as
landlord, you materially participated in
the production or management of the
production of farm products on this
land. This income is farm earnings. To
determine whether you materially participated in farm management or production, do not consider the activities of
any agent who acted for you. The material participation tests for landlords are
explained in chapter 12 of Pub. 225.

SE-4

2. Cash or a payment-in-kind from
the Department of Agriculture for participating in a land diversion program.
3. Payments for the use of rooms or
other space when you also provided substantial services for the convenience of
your tenants. Examples are hotel rooms,
boarding houses, tourist camps or
homes, trailer parks, parking lots, warehouses, and storage garages. See chapter 5 of Pub. 334 for more information.
4. Income from the retail sale of
newspapers and magazines if you were
age 18 or older and kept the profits.
5. Income you receive as a direct seller. Newspaper carriers or distributors of
any age are direct sellers if certain conditions apply. See chapter 5 of Pub. 334
for details.
6. Amounts received by current or
former self-employed insurance agents
and salespersons that are:
a. Paid after retirement but figured as
a percentage of commissions received
from the paying company before retirement,
b. Renewal commissions, or
c. Deferred commissions paid after
retirement for sales made before retirement.
However, certain termination payments received by former insurance
salespersons are not included in net
earnings from self-employment (as explained in item 10 under Income and
Losses Not Included in Net Earnings
From Self­Employment).
7. Income of certain crew members
of fishing vessels with crews of normally fewer than 10 people. See chapter 10
of Pub. 334 for details.
8. Fees as a state or local government
employee if you were paid only on a fee
basis and the job was not covered under
a federal-state social security coverage
agreement.
9. Interest received in the course of
any trade or business, such as interest on
notes or accounts receivable.
10. Fees and other payments received
by you for services as a director of a
corporation.
11. Recapture amounts under sections
179 and 280F that you included in gross
income because the business use of the
property dropped to 50% or less. Do not

include amounts you recaptured on the
disposition of property. See Form 4797.
12. Fees you received as a professional fiduciary. This may also apply to
fees paid to you as a nonprofessional fiduciary if the fees relate to active participation in the operation of the estate's
business, or the management of an estate
that required extensive management activities over a long period of time.
13. Gain or loss from section 1256
contracts or related property by an options or commodities dealer in the normal course of dealing in or trading section 1256 contracts.

Income and Losses Not
Included in Net Earnings
From Self-Employment
1. Salaries, fees, etc., subject to social
security or Medicare tax that you received for performing services as an employee, including services performed as
an employee under the railroad retirement system. This includes services performed as a public official (except as a
fee basis government employee as explained in item 8 under Other Income
and Losses Included in Net Earnings
From Self­Employment, earlier).
2. Fees received for services performed as a notary public. If you had no
other income subject to SE tax, enter
“Exempt—Notary” on Form 1040,
line 56. Do not file Schedule SE. However, if you had other earnings of $400
or more subject to SE tax, enter “Exempt—Notary” and the amount of your
net profit as a notary public from Schedule C or Schedule C-EZ on the dotted
line to the left of Schedule SE, line 3.
Subtract that amount from the total of
lines 1a, 1b, and 2, and enter the result
on line 3.
3. Income you received as a retired
partner under a written partnership plan
that provides for lifelong periodic retirement payments if you had no other interest in the partnership and did not perform services for it during the year.
4. Income from real estate rentals if
you did not receive the income in the
course of a trade or business as a real estate dealer. Report this income on
Schedule E.
5. Income from farm rentals (including rentals paid in crop shares) if, as

landlord, you did not materially participate in the production or management of
the production of farm products on the
land. See chapter 12 of Pub. 225 for details. Report this income on Form 4835.
Use two Forms 4835 if you and your
spouse made an election to be taxed as a
qualified joint venture.
6. Payments you receive from the
Conservation Reserve Program if you
are receiving social security benefits for
retirement or disability. Deduct these
payments on line 1b of Schedule SE.
7. Dividends on shares of stock and
interest on bonds, notes, etc., if you did
not receive the income in the course of
your trade or business as a dealer in
stocks or securities.
8. Gain or loss from:
a. The sale or exchange of a capital
asset;
b. The sale, exchange, involuntary
conversion, or other disposition of property unless the property is stock in trade
or other property that would be includible in inventory, or held primarily for
sale to customers in the ordinary course
of the business; or
c. Certain transactions in timber,
coal, or domestic iron ore.
9. Net operating losses from other
years.
10. Termination payments you received as a former insurance salesperson
if all of the following conditions are
met.
a. The payment was received from an
insurance company because of services
you performed as an insurance salesperson for the company.
b. The payment was received after
termination of your agreement to perform services for the company.
c. You did not perform any services
for the company after termination and
before the end of the year in which you
received the payment.
d. You entered into a covenant not to
compete against the company for at least
a 1-year period beginning on the date of
termination.
e. The amount of the payment depended primarily on policies sold by or
credited to your account during the last
year of the agreement, or the extent to

SE-5

which those policies remain in force for
some period after termination, or both.
f. The amount of the payment did not
depend to any extent on length of service or overall earnings from services
performed for the company (regardless
of whether eligibility for the payment
depended on length of service).

Statutory Employee Income
If you were a statutory employee, do not
include the net profit or (loss) from
Schedule C, line 31 (or the net profit
from Schedule C-EZ, line 3), on Short
or Long Schedule SE, line 2. But if you
file Long Schedule SE, be sure to include statutory employee social security
wages and tips from Form W-2 on
line 8a.

Optional Methods
How Can the Optional Methods
Help You
Social security coverage. The optional
methods may give you credit toward
your social security coverage even
though you have a loss or a small
amount of income from self-employment.
Earned income credit (EIC). Using
the optional methods may qualify you to
claim the EIC or give you a larger credit
if your net earnings from self-employment (determined without using the optional methods) are less than $4,520.
Figure the EIC with and without using
the optional methods to see if the optional methods will benefit you.
Additional child tax credit. Using the
optional methods may qualify you to
claim the additional child tax credit or
give you a larger credit if your net earnings from self-employment (determined
without using the optional methods) are
less than $4,520. Figure the additional
child tax credit with and without using
the optional methods to see if the optional methods will benefit you.
Child and dependent care credit. The
optional methods may help you qualify
for this credit or give you a larger credit
if your net earnings from self-employment (determined without using the optional methods) are less than $4,520.
Figure this credit with and without using
the optional methods to see if the optional methods will benefit you.

Self­employed health insurance de­
duction. The optional methods of computing net earnings from self-employment may be used to figure your
self-employed health insurance deduction.
Using the optional methods
may give you the benefits de­
CAUTION
scribed above, but they may al­
so increase your SE tax.

!

Changing Your Method
You can change the method after you
file your return. That is, you can change
from the regular to the optional method
or from the optional to the regular method. To do this, file Form 1040X.
Farm Optional Method
You may use this method to figure your
net earnings from farm self-employment
if your gross farm income was $6,780 or
less or your net farm profits were less
than $4,894. Net farm profits are:
The total of the amounts from
Schedule F (Form 1040), line 34, and
Schedule K-1 (Form 1065), box 14,
code A, minus
The amount you would have entered on Schedule SE, line 1b, had you
not used the optional method.
There is no limit on how many years
you can use this method.
Under this method, report in Part II,
line 15, two-thirds of your gross farm income, up to $4,520, as your net earnings. This method can increase or decrease your net earnings from farm
self-employment even if the farming
business had a loss.
For a farm partnership, figure your
share of gross income based on the partnership agreement. With guaranteed
payments, your share of the partnership's
gross income is your guaranteed payments plus your share of the gross income after it is reduced by all guaranteed payments made by the partnership.
If you were a limited partner, include
only guaranteed payments for services
you actually rendered to or on behalf of
the partnership.

self-employment if your net nonfarm
profits were less than $4,894 and also
less than 72.189% of your gross nonfarm income. Net nonfarm profits are
the total of the amounts from:
Schedule C (Form 1040), line 31,
Schedule C-EZ (Form 1040),
line 3,
Schedule K-1 (Form 1065),
box 14, code A (from other than farm
partnerships), and
Schedule K-1 (Form 1065-B),
box 9, code J1.
To use this method, you also must be
regularly self-employed. You meet this
requirement if your actual net earnings
from self-employment were $400 or
more in 2 of the 3 years preceding the
year you use the nonfarm optional method. The net earnings of $400 or more
could be from either farm or nonfarm
earnings or both. The net earnings include your distributive share of partnership income or loss subject to SE tax.
Use of the nonfarm optional method
from nonfarm self-employment is limited to 5 years. The 5 years do not have
to be consecutive.
Under this method, report in Part II,
line 17, two-thirds of your gross nonfarm income, up to the amount on
line 16, as your net earnings. But you
cannot report less than your actual net
earnings from nonfarm self-employment.
Figure your share of gross income
from a nonfarm partnership in the same
manner as a farm partnership. See Farm
Optional Method for details.
Using Both Optional Methods
If you can use both methods, you can report less than your total actual net earnings from farm and nonfarm self-employment, but you cannot report less
than your actual net earnings from nonfarm self-employment alone.
If you use both methods to figure net
earnings, you cannot report more than
$4,520 of net earnings from self-employment.

Nonfarm Optional Method
You may be able to use this method to
figure your net earnings from nonfarm

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