2010 Instruction 1040 Schedule Se (Form 1040) Page 5
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5Changing Your Method
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were a statutory employee, do not include
Schedule C (Form 1040), line 31,
the net profit or (loss) from that Schedule
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You can change the method after you file
Schedule C-EZ (Form 1040), line 3,
C, line 31 (or the net profit from Schedule
your return. That is, you can change from
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Schedule K-1 (Form 1065), box 14,
C-EZ, line 3), on Short or Long Schedule
the regular to the optional method or from
code A (from other than farm partnerships),
SE, line 2. But if you file Long Schedule
the optional to the regular method. To do
and
SE, be sure to include statutory employee
this, file Form 1040X.
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social security wages and tips from Form
Schedule K-1 (Form 1065-B),
Farm Optional Method
W-2 on line 8a.
box 9, code J1.
To use this method, you also must be
Optional Methods
You may use this method to figure your net
regularly self-employed. You meet this re-
earnings from farm self-employment if
quirement if your actual net earnings from
How Can the Optional Methods
your gross farm income was $6,720 or less
self-employment were $400 or more in 2 of
Help You
or your net farm profits were less than
the 3 years preceding the year you use the
$4,851. Net farm profits are:
The optional
Social security coverage.
nonfarm optional method. The net earnings
•
The total of the amounts from Sched-
methods may give you credit toward your
of $400 or more could be from either farm
ule F (Form 1040), line 36, and Schedule
social security coverage even though you
or nonfarm earnings or both. The net earn-
K-1 (Form 1065), box 14, code A, minus
have a loss or a small amount of income
ings include your distributive share of part-
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The amount you would have entered
from self-employment.
nership income or loss subject to SE tax.
on Schedule SE, line 1b, had you not used
Earned income credit (EIC).
Using the op-
Use of the nonfarm optional method
the optional method.
tional methods may qualify you to claim
from nonfarm self-employment is limited
There is no limit on how many years
the EIC or give you a larger credit if your
to 5 years. The 5 years do not have to be
you can use this method.
net earnings from self-employment (deter-
consecutive.
mined without using the optional methods)
Under this method, report in Part II, line
Under this method, report in Part II, line
are less than $4,480. Figure the EIC with
15, two-thirds of your gross farm income,
17, two-thirds of your gross nonfarm in-
and without using the optional methods to
up to $4,480, as your net earnings. This
come, up to the amount on line 16, as your
see if the optional methods will benefit you.
method can increase or decrease your net
net earnings. But you cannot report less
earnings from farm self-employment even
than your actual net earnings from nonfarm
Using the op-
Additional child tax credit.
if the farming business had a loss.
self-employment.
tional methods may qualify you to claim
the additional child tax credit or give you a
For a farm partnership, figure your share
Figure your share of gross income from
of gross income based on the partnership
larger credit if your net earnings from
a nonfarm partnership in the same manner
self-employment (determined without us-
agreement. With guaranteed payments,
as a farm partnership. See Farm Optional
ing the optional methods) are less than
your share of the partnership’s gross in-
Method on this page for details.
come is your guaranteed payments plus
$4,480. Figure the additional child tax
Using Both Optional
credit with and without using the optional
your share of the gross income after it is
methods to see if the optional methods will
reduced by all guaranteed payments made
Methods
benefit you.
by the partnership. If you were a limited
If you can use both methods, you can report
partner, include only guaranteed payments
The op-
Child and dependent care credit.
less than your total actual net earnings from
for services you actually rendered to or on
tional methods may help you qualify for
farm and nonfarm self-employment, but
behalf of the partnership.
this credit or give you a larger credit if your
you cannot report less than your actual net
net earnings from self-employment (deter-
Nonfarm Optional Method
earnings from nonfarm self-employment
mined without using the optional methods)
alone.
You may be able to use this method to fig-
are less than $4,480. Figure this credit with
If you use both methods to figure net
ure your net earnings from nonfarm
and without using the optional methods to
earnings, you cannot report more than
self-employment if your net nonfarm prof-
see if the optional methods will benefit you.
$4,480 of net earnings from self-employ-
its were less than $4,851 and also less than
Self-employed health insurance deduction.
ment.
72.189% of your gross nonfarm income.
The optional methods of computing net
Net nonfarm profits are the total of the
earnings from self-employment may be
amounts from:
used to figure your self-employed health
insurance deduction.
Using the optional methods
may give you the benefits de-
scribed earlier, but they may
also increase your SE tax.
SE-5
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