If you are buying and selling items on a market stall or sell services you provide, such as housekeeping, babysitting or photography, you’re carrying out a trading activity that may be subject to self-employment tax.

If you make more than $400.00 in net earnings from your trade or activity in the calendar year, you are required to file a schedule C Profit and Loss Statement with your Federal Income Tax return. In addition, you must file schedule SE - Self Employment Tax to calculate the self employment portion of tax on your business or trade.

Self employment tax is based solely upon your earnings from your trade or activity.  This tax is considered in addition to regular Income Tax. It is important to know in advance if your activity is subject to this tax, because it can be substantial if your activity is thriving.

The good news is, once it is established that you have a profit motive, you can also deduct  your expenses, equipment, material purchases and even mileage for travel connected to your activity. As well, any losses your business incurs can offset other ordinary income.

If you aren’t sure whether or not your activity falls into the business catagory for tax purposes, call for an appointment.