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socrateaser, Lawyer
Category: Tax
Satisfied Customers: 37811
Experience:  Retired (mostly)
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My daughter sells real estate. Her net profit was only $2238.

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My daughter sells real estate. Her net profit was only $2238. from schedule C. Did not do any self employment tax.
She received a letter from IRS stating "income reported on line 12, form 1040 indicates you may be liable for Self-employment tax" "If you are not liable for self-employment tax please provide an explanation with your reply to this letter."

A friend did her tax's. I am trying to help her with this and try to figure out what her friend did.

Can my daughter use the nonfarm optional method. Her profits were less than 4721. Or am I totally in left field with this. What can she do?

You can use the nonfarm optional method if net profits from all self-employment (including K-1 material participant income) is less than $4,721 and also less than 72.189% of your gross nonfarm self-employment income.

To use this method, you also must be regularly self-employed. You meet this requirement if your actual net earnings from self-employment were $400 or more in 2 of the 3 years preceding the year you use the nonfarm optional method. The net earnings of $400 or more could be from either farm or nonfarm earnings or both.


Hope this helps.


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Customer: replied 6 years ago.
I apologize. I don't understand most of what you said. In 2007 she had a net loss of$2673. and in 2008 she had a net loss of $299. Her net earnings were not 400. or more from self employment. What are her options? How does she respond to the IRS?

Based upon your stated facts, your daughter cannot use the optional nonfarm method, and she owes $316 in self-employment tax. She needs to either file an amended return with a Schedule SE filing, or she can accept the IRS finding and pay.


I'd like to say that there is some magic bullet here, but unless your daughter can find a few more expenses to put on an amended Schedule C, so as to reduce her income below $400, then she will have to pay the self-employment tax.


Please don't shoot the messenger.

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