1115.040.10 Losses from Self-employment Income

IM-#88  October 4, 2006

The following discussion regarding offsetting refers to earned self-employment income only. Unearned self-employment income cannot be offset.

FAMIS combines all earned self-employment income to determine the gross income/proceeds derived from self-employment. All expenses of producing this self-employment income are combined to determine the total expense of producing the self-employment income. This includes farm and non-farm self-employment income. Losses from one earned self-employment enterprise may offset income from another self-employment enterprise. However, losses from non-farm self-employment cannot be offset against other types of non-self-employment income.

If the loss shown is from farming self-employment, the farm loss is deducted from other non-self-employment income.

To be considered a self-employed farmer, the farming operation must show proceeds of $1,000 within the year (source code FA). The $1,000 in proceeds is the amount considered prior to applying any expense of producing the farm income.

EXAMPLE: The farmer sells $2,000 worth of livestock. The cost for livestock feed is $1,200 and the cost of veterinary services is $1,000. The farming operation has gross proceeds of at least $1,000. The farm operation shows a loss because the expense of producing ($2,200) is greater than the income ($2,000).

If the proceeds are less than $1,000 use source code FM. FAMIS uses the source codes to determine if there is a farm loss.

EXAMPLE FARM AND NON-FARM SELF-EMPLOYMENT LOSS

FARM NON-FARM
Self-employment Income    1,000
Self-employment income    1,000
Expense of producing    1,200
Farm income        -0-
Profit         -0-
Total income    1,000
Net loss      -200
Expense of producing    1,100
 
Profit/net loss      -100
 
Net farm loss      -200
The $100 loss from non-farm self-employment cannot be subtracted from other non-self-employment income. Only the $200 farm loss can be offset from other non-self-employment income.


EXAMPLE NON-FARM SELF-EMPLOYMENT LOSS
 
FARM NON-FARM
Self-employment Income    1,000
Self-employment income    1,000
Expense of producing       900
Farm income       100
Profit        100
Total income    1,100
Net loss         -0-
Expense of producing    1,200
 
Profit loss      -100
In this example, no offsetting is made from other non-self-employment income. The loss shown is from non-self-employment.


EXAMPLE FARM LOSS AND NON-FARM SELF-EMPLOYMENT PROFIT
 
FARM NON-FARM
Self-employment Income    1,000
Self-employment income    1,000
Expense of producing    2,000
Farm income        -0-
Profit         -0-
Total income    1,000
Net loss   -1,000
Expense of producing       500
  
Profit/loss      +500
  
Farm loss    -1,000
 
Net farm loss      -500
In this example, the net farm loss of $500 is offset from other non-self-employment income.

Consider farm loss as follows.