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46 | P a g e October 25 5. Corporations: In corporations, prospective shareholders exchange money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. ‘C’ Corporations: For federal income tax purposes, a ‘C’ corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes, and distributes profits to shareholders. The profit of a corporation is taxed to the corporation when earned and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss from the corporation. Corporations, S Corporations, and LLCs can be considered self-employment enterprises; however, the income individuals receive is not considered self-employment income. Any wages received by an individual from the corporation are included as earned income and must be entered as such in CHIMES as ‘wages.’ EARNED VS UNEARNED INCOME Self-employment income is generally considered earned income. The income is considered unearned income if any of the following occur: 1. Rental self-employment income and rental partnership income, in which the individual is not actively participating in the business at least 20 hours per week. 2. Contract for deed income. SELF-EMPLOYMENT INCOME EXCLUSIONS: The following are income exclusions specific to self-employment: 1. Federal gasoline tax credit 2. State gas tax 3. Disaster payments 4. Crop insurance payments 5. Patronage dividends paid to a self-employment enterprise. Patronage dividends, paid by cooperatives in cash, are included unearned self-employment income. If the patronage dividends are paid in stock, they are included as a resource. 6. State or federal tax refunds 7. Pandemic Unemployment Assistance (PUA)– Is paid to Independent Contractors and Self-Employed individuals who aren’t covered under regular Unemployment Insurance