1115.040.10 Losses From Self-Employment Income – DSS Manuals

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:

Determine income amount using appropriate tax forms and enter the appropriate information.

Determine total gross EARNED income from all other sources.

Determine total UNEARNED income from all sources.

Add the total EARNED and total UNEARNED income.

Apply the EARNED income deduction.

Subtract the total amount of the farm loss.

For non-elderly/disabled households, use the income amount, after subtracting the farm loss, to determine if the household is eligible on gross income.

Use the income amount, after subtracting the farm loss, in calculating net adjusted income using appropriate deductions.