Understanding Self-Employment Profit and Loss: A Tax Guide for Independent Earners

The profit or loss from self-employment is the difference between your revenue and costs. When your self-employment income exceeds your expenses, you profit.

Conversely, when self-employment expenses exceed income, there is a loss. Self-employed individuals pay self-employment tax. The SE tax is a Social Security and Medicare tax.

---

What is self-employment?

Self-employment entails running a trade or business as a lone owner, member of a partnership, or doing business for oneself. It includes selling items and services, working as an independent contractor, consultant, or freelancer, renting out real estate and royalties, and earning other miscellaneous revenue.

Most essential, we urge that you keep detailed records of each expense in order to precisely track and report all qualified business expenses. To calculate your profit or loss, report the following business expenses on Schedule C.

---

Business Expenses

Cost of goods sold

You can record the cost of purchasing products for production or resale if your company needs you to. This comprises your initial and final inventories, raw supplies, storage, labor expenditures, and so on.

General Business Expenses

Qualifying expenses for running your business are deductible. This includes the following:

• Expenses for typical business expenses, travel, and meals
• Repairs
• Equipment maintenance and rental options are available.
• Real Estate and Interest
• Insurance coverage for employees and contractors, including health and liability.

Personal Health Insurance Expenses

Fortunately, you can include the entire health insurance premium that you and your family paid out of pocket.

Business Use of Home

You can claim a deduction if you conduct business from any area of your house. In fact, you can deduct your home office! For example, it is computed as follows:

• Mortgage Interest
• Real estate taxes and insurance.
• Rent for your home
• Use of utilities
• The square foot of your home utilized solely for business divided by the total square foot of your home

Casualty and Theft Losses

Natural disaster losses to your home, household, or cars are considered casualties. However, illegally acquired property is considered theft.

• If your property is not destroyed, your casualty loss is the lesser of the adjusted basis or the drop in fair market value following the casualty.
• Your theft loss represents the adjusted basis of property.
• Reduce losses by the asset’s projected cash value at the end of its useful life, as well as any insurance reimbursement.
• If the loss outweighs your income, you have a net operational loss.

Vehicle and Depreciation

If you utilized your personal vehicle to conduct business, you can deduct the actual expenses or use the standard mileage deduction. For example, you can provide the following car information:

• Date the vehicle was placed into service
• Gasoline expenses
• Parking fees
• Costs include tolls, interest, and vehicle taxes.
• Other costs
• Total miles for the year, including business purposes

This entry was posted on Wednesday, April 9th, 2025 at 8:47 pm and is filed under Income. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.