Click on a question to see the answer.
Question: How do I specify self-employment income?
1. Wage Income
If you click the "self-employment" box for Wage income, that specifies that Wages are "self-employment income."
In that case, we will automatically calculate the Self-Employment Tax instead of the employee Social Security and Medicare taxes.
The Self-Employment Tax appears as a line item in the calculation of Federal Taxes.
You can see it towards the bottom of the View/Edit Taxes report (on the Forms & Reports tab).
If the income is "self-employment" income, then the FICA and Medicare taxes will be zero (and the self-employment tax will be calculated instead, as described above).
2. Business Income
If you enter the income as Business income, and specify that the type of business is "Individual," we will give exactly the same tax treatment as if you click the "self employment" box for Wage income.
To avoid double-counting, enter self-employment income either as Wages (with the self-employment box X'd), or as Business income, but not both.
You would use the Business screen for individual ("sole proprietor") income if the business had a value (i.e., could be sold for something), or if you wanted to specify that income was going to be split between the parties.
Always use the business screen to enter income for income from partnerships, S Corporations, or C Corporations.
When you select the type of business (Individual, Partnership, S Corporation, or C Corporation), the software will do the right thing from a tax perspective.
Individual and Partnership income are self-employment income; S Corp and C Corp income are not. Partnership and S Corp income are treated as "Rental / Royalty / Partnership / S Corporation" income. C Corp income is treated as dividend income. Individual business income appears as Business and Farm income.
If a C Corporation or S Corporation business pays both a salary -- which is subject to FICA and Medicare -- as well as dividends, then enter the salary as Wages (which then would NOT be self-employment income), and enter just the dividends on the Business screen.
For example, if Roger owns an S Corporation business that pays him $50,000 on which FICA and Medicare are withheld, and $20,000 of dividends, you would enter $50,000 as Wage income (not self-employment income) and $20,000 as Business Income (specified as S Corporation income).
That way, all the income gets the correct tax treatment, and no income is entered twice.