Deduct the actual business expenses reported by the individual from the gross self-employment income. Refer to paragraph C.2. of this section to determine self-employment income and expenses. See section 419-3 for a list of allowable business expenses.

B . Deducting Losses from a Self-Employment Business

When an individual is self-employed, they can deduct a loss in the current year from other earned income.

1. First determine the amount of the loss from the self-employment business. (Refer to 419-2 to determine self-employment income.)

2. If the information about income and expenses of the self-employment business shows that the business is losing money in the current year, and this is expected to continue into future months, calculate the monthly amount of the loss.

3. When using the prior year's tax forms to determine the loss, document why the loss is expected to continue in the current year.

4. The individual may need to provide more current verification of business income and expenses to justify that the loss is expected to continue.

5. Deduct this anticipated loss from the other earned income such as wages, income from another self-employment business, or from the spouse's earned income.

6. The deduction of a loss from self-employment can only be deducted from other earned income. It cannot be deducted from unearned income.