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
Utilities	$4,200
Insurance (other than health)	$1,900
Gain on sale of refrigerator	$475
Fire loss on store building	$1,200
Net operating loss carried over from previous years	$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 are not allowed under federal tax law to determine net profit for self-employment tax.