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a. An individual who owns and operates his trade or business activity alone. No formal legal action is required to establish this type of activity. All profit and loss belong to the individual.
b. Adjusted gross income is calculated by subtracting the operational expenses from the gross receipts of the business in the base period. Any salary or disbursements made to the individual from his business are disregarded in calculating adjusted self-employment income.
7. Partnership
A partnership is the association of two or more individuals in a trade or business. The countable gross earned self-employment also includes any profit or loss in a partnership. Partnerships are required by the IRS to file a Form 1065 Partnership Return of Income which shows the income and expenses of the partnership, as well as the assets and liabilities. If the partners do not file the required tax forms, they are still treated as partners for the purposes of determining countable gross self-employment income.
Self-employment also includes any distributive share (profit at the end of the year after salaries are paid), whether or not distributed, of income from a trade or business carried on by a partnership. Count profit from a partnership or corporation as distributable income even if the a/b states it is not available.
a. General – Each partner jointly owns; income received is self-employment.
b. Limited – Owned by one or more general partners and one or more limited partners. Income to a general partner is self-employment. Income to a limited partner is unearned income. (Reported on Schedule K-1 from the partnership and Schedule E on the individual tax return).
c. Limited Liability Partnership – It is like a general partnership except partners are granted limited liability. Income to a general partner is self- employment.
8. Corporations
a. A corporation is a distinct legal entity formed by individuals but having separate legal status from the individuals. The owners must file Articles of Incorporation with the Secretary of State. The Articles specify the type of corporation and the ownership agreement between the owners. Corporations are enduring legal business entities with lives that extend beyond the illness or even death of their owners.