Methods for Computing Self-Employment Tax (continued)

Regular Method Step 1: Determine Net Profit (continued)

When calculating the net earnings from self-employment on Form 1040-SS, include only:

Income or Expense Items	Amount
Gross profits from sales	$77,200
Rent paid	$5,400
Heat, light, and telephone	$4,200
Insurance (other than health)	$1,900
Gain on sale of refrigerator	$475
Fire loss on store building	$1,200
Net operating loss carryover	$1,500
Total Expenses:	$11,500
Net Profit	$65,700

The sale of the refrigerator, the fire loss, and the net operating loss carried over from a previous year are not included in the calculation. These items are related to the business but do not represent direct income or losses from its operation so they are not subject to self-employment tax.