IRS Publication 334 — Tax Guide for Small Business (Schedule C)

• Personal, living, and family expenses.

• Political contributions.

• Settlements or payments related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement. You also can’t deduct attorney fees related to such settlement or payment. 9.

Figuring Net Profit or Loss Introduction After figuring your business income and expenses, you are ready to figure the net profit or net loss from your business. You do this by subtracting business expenses from business income. If your expenses are less than your income, the difference is net profit and becomes part of your income on line 3 of Schedule 1 (Form 1040). If your expenses are more than your income, the difference is a net loss. You can usually deduct it from gross income on line 3 of Schedule 1 (Form 1040). But in some situations your loss is limited. This chapter briefly explains three of those situations. Other situations that may limit your loss are explained in the instructions for Schedule C (Form 1040), line Gand line 32.

If you have more than one business, you must figure your net profit or loss for each business on a separate Schedule C (Form 1040).

Excess business loss limitation. Your loss from a trade or business may be limited. Use Form 461 to determine the amount of your excess business loss, if any. Your excess business loss will be included as income on line 8p of Schedule 1 (Form 1040) and treated as an NOL that you must carry forward and deduct in a subsequent year. For more information about the excess business loss limitation, see Form 461 and its instructions. Net Operating Losses (NOLs) If your deductions for the year are more than your income for the year, you may have an NOL. You can use an NOL by deducting it from your income in another year or years. Examples of typical losses that may produce an NOL include, but are not limited to, losses incurred from the following.

• Your trade or business.

CAUTION !

• A casualty or theft resulting from a federally declared disaster.

• Rental property.

A loss from operating a business is the most common reason for an NOL.

For details about NOLs, see the Instructions for Form 172. It explains how to figure an NOL, when to use it, how to claim an NOL deduction, and how to figure an NOL carryover. Activities Not Engaged in for Profit If you don’t carry on your business to make a profit, there is a limit on the deductions you can take. You generally can’t use a loss from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, come under this limit. For details about not -for-profit activities, see IRS.gov/ newsroom/Hobby-or-business-here’s-what-to-knowabout-that-side-hustle. 10.

Self-Employment (SE) Tax The SE tax rules apply no matter how old you are and even if you are already receiving social security and Medicare benefits. Who Must Pay SE Tax?

Generally, you must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self -employment were $400 or more. Use Schedule SE (Form 1040) to figure net earnings from self-employment. Sole proprietor or independent contractor. If you are self-employed as a sole proprietor or independent contractor, you generally use Schedule C (Form 1040) to figure your earnings subject to SE tax. SE tax rate. The 2025 SE tax rate on net earnings is 15.3% (12.4% social security tax plus 2.9% Medicare tax). Maximum earnings subject to SE tax. Only the first $176,100 of your combined wages, tips, and net earnings in 2025 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or the Tier 1 part of railroad retirement tax.

All of your combined wages, tips, and net earnings in 2025 are subject to any combination of the 2.9% Medicare CAUTION !

Publication 334 (2025) Chapter 9 Figuring Net Profit or Loss 43