Self Employment tax calculation on joint return


P

privateuly

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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F

Frederick Lorca

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?
Yes.

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?
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
 
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R

Rod

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?
SE is person specific
he was right
 
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M

Mark Bole

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?
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
 
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B

Benjamin Yazersky CPA

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

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
 
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D

DORFMONT

private...@gmail.com said:
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?
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
 
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