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Self Employment tax calculation on joint return

My wife and I (filing jointly) started an LLC (50-50 members) in 2005. That year, the LLC had a loss of $7000. In the same year, my wife had earned $5000 doing some consulting work. I am now reviewing the 2005 return that our (ex-) accountant did, and I realized that in calculating the Self-Employment tax, he had calculated as the income the $5000 consulting income minus half of the loss from the LLC ($3500), giving an income basis of $1500. In other words, he had ignored my share of the LLC loss eventhough my wife and I filed jointly. Is this right? Should we have been entitled to deduct the full amount of LLC loss which would give us 0 income basis for the purpose of the self-employment tax calculation? Thanks in advance!

Uly

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Reply to
privateuly
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Yes.

The full loss is deductible against your joint income for income tax purposes. For SE tax purposes, each respective spouse's loss is used to determine his and her net SE income for SE tax purposes. Frederick Lorca

Reply to
Frederick Lorca

SE is person specific he was right

Reply to
Rod

Yes, that is right, self-employment tax is never "joint", even on a joint return (same for wage earners -- even if one reaches the max income for Soc Sec, the other is still taxable). You had no earned income from business activity subject to self-employment tax, however your spouse did. This would be more clear if done correctly: in a non-community property state, you and your wife would be considered partners and should be filing a partnership return, in a community property state you are each allowed to file your own Schedule(s) C if you jointly operate a business(es). Either way, the self-employment tax would be individually calculated for each of you.

-Mark Bole

Reply to
Mark Bole

on the surface, the 2005 seems correct se tax is on an individual, not both h&w

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Reply to
Benjamin Yazersky CPA

Because you and your wife are 2 separate people with your own individual Social Security accounts, wardrobes, favorite foods, etc., you get 2 separate Schedule SEs, one for each of you. Self employment tax is figured for each self separately and then added together on the joint tax return. Your ex-accountant did it right. He just didn't explain it to you, or did you ask him? Linda Dorfmont E.A., CFP, CSA

Reply to
DORFMONT

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