CHAPTER 40Income or Loss From Your Business or Profession
As a self-employed person, you report income and expenses from your business or profession separately from your other income, such as income from wages. On Schedule C, you report your business income and itemize your expenses. Any net profit is subject to self-employment tax, as well as regular tax. A net profit can also be the basis of deductible contributions to a SEP or qualified retirement plan, as discussed in Chapter 41.
If you work out of your home, you may deduct home office expenses (40.12).
If you claim a loss on Schedule C, be prepared to show that you regularly and substantially participate in the business.
Otherwise, your loss may be considered a passive loss deductible only from passive income, as discussed in Chapter 10.
If you show a profit, you may be eligible for a personal deduction of 20% of qualified business income (40.24). If you have a loss that you can't fully use on your 2021 return, you may be able to carry it forward to offset income in future years (40.18).
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