(2)Computation. If your actual net earnings from self-employment are less than $1,600 and less than 662/3 percent of your gross income, you may, at your option, report 662/3 percent of your gross income (but not more than $1,600) as your net earnings from self-employment. Example: A operates a grocery store and files income tax returns on a calendar year basis. A meets the self-employed on a regular basis requirement because actual net earnings from self-employment were $400 or more in 1976 and in 1977. Gross income and net profit from operating the grocery store in 1978 through 1980 are as follows:
1978 | 1979 | 1980 |
Gross income | $2,800 | $1,200 | $1,000 |
Net profit | 300 | 400 | 800 |
For the year 1978, A may report as annual net earnings from self-employment either-
(i) None. (Actual net earnings from self-employment are less than $400); or(ii) $1,600. (Non-agricultural option, 662/3 percent of $2,800, but not to exceed the $1,600 maximum.)For the year 1979, A may report as annual net earnings from self-employment either-
(i) $400. (Actual net earnings from self-employment); or(ii) $800. (Non-agricultural option, 662/3 percent of $1,200.)For the year 1980, A must report $800, the actual net earnings from self-employment. The non-agricultural option is not available because A's actual net earnings are not less than 662/3 percent of the gross income.
(3)Figuring net earnings from both non-agricultural and agricultural self-employment. If you are self-employed on a regular basis, you may use the non-agricultural optional method of reporting when you have both non-agricultural and agricultural trades or businesses. However, in order to use this method, your actual net earnings from non-agricultural self-employment combined with your actual net earnings from agricultural self-employment, or your optional net earnings from agricultural self-employment, must be less than $1,600, and the net non-agricultural earnings must be less than 662/3 percent of your gross non-agricultural income. If you qualify for using both the non-agricultural and agricultural option, you may report less than your actual total net earnings, but not less than your actual net earnings from non-agricultural self-employment alone. If you elect to use both options in a given taxable year, the combined maximum reportable net earnings from self-employment may not exceed $1,600. Example: C was regularly self-employed. She derived actual net earnings from self-employment of $400 or more in 1975 and in 1976. Her gross income and net profit from operating both a grocery store and a farm in 1978 are:
GROCERY STORE |
Gross income | $1,000 |
Net profit | 800 |
FARM |
Gross income | $2,600 |
Net profit | 400 |
For the year 1978, C may report $1,200 (actual net earnings from self-employment from both businesses), or $2,400 ($1,600 agricultural option (662/3 percent of $2,600 farm gross income not to exceed $1,600) and $800 grocery store profit). C cannot use the non-agricultural option for 1978 because her actual grocery store net exceeds 662/3 percent of her grocery store gross income.