NORTH DAKOTA DEPARTMENT OF HUMAN SERVICES
BISMARCK, NORTH DAKOTA
January 28, 2005

IM #4959

TO:		County Director
EA Policy Regional Representatives

FROM:	Blaine Nordwall, Director, Economic Assistance Policy

SUBJECT:	Self-Employment Income Tax Guidelines

PROGRAMS:	Food Stamps and Child Care Assistance

RETENTION: 	Until Manualized

Attached are the 2004 income tax guidelines, samples of tax forms, and an anticipated income self-employment worksheet that may be helpful when income tax forms are not used.  Also attached is an electronic version in Excel of the self-employment worksheets. Instructions are included as part of the worksheets. 

Changes to the 2004 Income Tax Guidelines:

1.	Sub Notes:  Part I sub note 2, Part II sub note 1 and 	Part III sub notes 2 and 4 - Changed the utility sub note to address the change in policy for self-employed households where there is only one meter.  The appropriate mandatory utility standard for the household’s residence must be allowed and the total utility costs minus the appropriate utility standard must be allowed as a self-employment cost of doing business.  

2.	Sub Notes:  Part I sub note 2, Part II sub note 1 and 	Part III sub notes 2 - An additional paragraph was added as a reminder to add shelter costs back into the income when the home shelter costs cannot be separately identified from the business.

Food Stamps:

Policy Change

430-05-30-55-15 – Treatment of Expenses, the rates to be used for the Child and Adult Care Food Program reimbursement rates have been updated as follows:

	Breakfast	1.04
	Lunch		1.92
	Supper		1.92
	Snacks		 .57

Manual Sites

Corporations – 430-05-30-45
Partnerships – 430-05-30-50
Self-Employment - 430-05-30-55

Child Care Assistance Program:

To further align programs, the Child Care Assistance Program is using the Food Stamp method for self-employment.  The disregards and inclusions will mirror the Food Stamp program for self-employment.
If a self-employment individual has not yet brought in the 2004 tax forms, continue to use what is already in place until the individual brings in the 2004 tax forms.
If a self-employed individual applies and has only the 2003 tax form, compute the self-employment using the “Income Tax Guidelines 400-26-20-01-01-01-05, Revised 8/1/04 ML #2929.”  When the recipient brings in the 2004 tax forms, use the self-certification forms that mirror the self-employment forms for Food Stamps.
If a self-employed individual who has not been in her self-employment business long enough for the business to be reflected in the tax forms, the worker may use the Anticipated Self-Employment Workbook.
Attached to IM is the electronic version of the Excel workbook for self-certification and anticipated self-employment worksheet.  This is the same workbook that Food Stamps workers are using.  This workbook contains four worksheets labeled on the bottom of the worksheet as follows:  Intro & Instructions; Step 1. Enter Income; Step 2. Review computations; and Anti Self Emp Wksht.  To go from one worksheet, click on the labeled tab.

Manual Sites

Earned Income from Self-Employment, 400-26-20-01-01-01
Allowable Expenses, 400-26-20-01-01-01-01
Non-Allowable Expenses 400-26-20-01-01-01-03
Income Tax Guideline 400-26-20-01-01-01-05
Income Exclusions 400-26-20-10

Assets

The Child Care Assistance Program does not consider assets.

Corporations

Corporations are considered a self-employment enterprise; however, the income individuals receive is not considered self-employment income. 
Corporations are separate entities, and the corporation is responsible for its debts and obligations. An owner or employee of a closely held corporation (just a few shareholders) or another corporation is not a self-employed individual because the business income and liabilities belong to the corporation, not the individual.
If an individual receives a salary from the corporation, the individual is considered an employee of the corporation and the salary is counted as salaried income. 
Shareholders who only receive dividends are not entitled to the costs of producing self-employment income or the earned income disregard. The dividends are unearned income and must be annualized.

Partnerships

A partnership is a self-employment business set up as a partnership with two or more partners. In these cases, there should be an oral or written agreement. Generally, a partner’s share of income, gain, loss, deductions or credits is determined by a partnership agreement. 
In addition to personal income tax forms, partnerships are required to file 1065 and K-1 forms. The Schedule K-1 (Form 1065) is used to determine the recipient’s share of the profit, loss, and capital. The business income and liabilities are the responsibility of all the partners, with the partnership defining shares of ownership and responsibility.

Self-Employment

An individual who is working for themselves, rather than for an employer, is considered self-employed. The individual may be a contractor, franchise holder, owner/operator, partner, etc. The individual must meet the following criteria to be considered self-employed: 
1.	Earn the income directly from business or trade, not from wages or salary from an employer.
2.	Be responsible for the payment of entire Social Security and Federal withholding taxes. [If an employee, the employer would pay half of their Social Security Tax and withhold federal income tax from the employee’s salary.]
3.	Do not have an employee/employer relationship with another individual and basically be responsible for setting the job schedule (when to work, how much to charge, etc.).
4.	File self-employment tax forms (Sch. F, C, C-EZ, E, 4797, S.E., etc.), however, not all individuals file tax forms and some may file incorrectly.
Examples:
•	Day care services being provided in the household’s home
•	Avon distributor 
•	Tupperware distributor
•	Amway distributor 
•	A business owner 
•	Farmers
•	House cleaning service

Treatment of Income

The following procedures apply to self-employment income. 

Garnishments

Any amount garnished is not excluded. The total gross income is counted in the income computation.

Conservation Reserve Program Payments (CRP)

CRP payments are considered self-employment income and are annualized. Expenses are allowable costs of doing business that are claimed on the tax return.

Proceeds from the Sale of Property

•	If an individual sells equipment and the proceeds are diverted to a bank to repay a loan, the money from the sale is counted as income to the individual.

•	If an individual voluntarily turns over collateral to a bank and the bank sells the collateral to pay off a loan, proceeds of the sale are not counted as income to the individual. Once the collateral is turned over to the bank, it becomes the legal property of the bank.

•	If an individual holds title to property and sells the property, any gain from the sale is counted as income to the individual, calculated as follows:

Sale price minus the acquisition price plus any amount depreciated. Sales expenses such as broker’s fees and commissions are allowed.

•	If an individual gives title to the bank or if the property is repossessed prior to sale and the bank sells the property, the proceeds are not counted as income to the individual.

Installment Contracts or Contracts for Deed

Payments a household is receiving from an installment contract or contract for deed are counted as self-employment income.  These payments must be prorated over the period of time they are intended to cover.  

To arrive at the countable unearned self-employment income, subtract the allowable costs of doing business.  Allowable costs of doing business include but are not limited to the principle and interest portion of the original mortgage or loan, taxes and insurance.  The remaining amount is the countable unearned self-employment.  If the allowable costs of doing business exceed the payment, the loss can be used to offset other self-employment income.
  
Debt Write Off

If a lender is unable to collect on an individual loan, the lender may write off all or part of the outstanding balance.  The portion written off is not counted as income to the individual.

Annualizing Income

Self-employment income that represents a household's annual income must be annualized over a 12-month period of time, even if the income is received within a short period of time during those 12 months. Self-employment income is annualized even if the household receives income from other sources in addition to self-employment.

If the averaged annual amount does not accurately reflect the household's actual monthly circumstances because of substantial increases or decreases in business, the worker must calculate the self-employment income based on anticipated earnings. It may be helpful to review a cash flow plan that is prepared by a lender, FSA, or a bank. These plans anticipate income and expenses and can be used in conjunction with completion of the Food Stamp Anticipated Self-Employment Worksheet. 
 
Examples:

Changing from a grain and cattle operation to a cattle operation only, adding or reducing a quarter of cropland, natural disaster such as hail or drought.

Normal year to year fluctuation in market prices is not considered a substantial change in business.

If a self-employed enterprise has been in existence for less than a year, the worker has the option of averaging the income over the period of time it has been in operation or using monthly income and expense ledgers. If a household is certified for less than a year, the certification period should coincide with the month the household will be filing a tax return.

Exception:

Self-employed individuals who work only part of the year to supplement their income from regular employment during the balance of the year must have their self-employment income averaged over the period of time it is intended to cover rather than a 12-month period.

Example:

An individual may be a self-employed painter during the three summer months and works as a housekeeper for regular wages the rest of the year. The self-employment income from painting is averaged over the three summer months because it is intended to meet the individual's needs for only part of the year.

Determining Monthly Income

The gross self-employment income (including capital gains), minus the allowable costs of producing the self-employment income is calculated by one of the following methods: 
 
•	Divided by 12 months.

•	Divided by the number of months the business has been in operation, if less than a year.

•	Monthly, if monthly income and expense ledgers are used.
 
For households where there has been a significant increase or decrease in the operation, self-employment income is anticipated and averaged. Capital gains anticipated for the next 12 months are added to the anticipated income, minus the allowable costs of doing business and the total divided by 12. If a household reports a significant change in operation, a new averaged amount is calculated and used. 

The monthly net self-employment income is added to any other household income.

Exception: 

If the cost of producing self-employment income exceeds the income derived from self-employment as a farmer or rancher, such losses are offset against any other countable income in the household. A self-employed farmer or rancher for this special consideration must receive or anticipate receiving annual gross proceeds of $1,000 or more from the farming or ranching enterprise. This offset applies only to farmers or ranchers.

Calculating Anticipated Crop Income

The only time anticipated crop income is calculated is when the household had a crop loss in the prior year and anticipates planting some or all of the same land again this year. Calculating anticipated crop income is only done if line 8b of Schedule F contains an entry. 
 		
Example:

If line 8b is $8493.00 and represents an 88% crop loss and the farmer did not harvest the remaining 12% and again intends to plant the land, $9651.14 is an appropriate anticipated income entry ($8493 divided by .88 = $9651.14). 
If the farmer did harvest the remaining 12%, $8493 is counted as anticipated crop income and the 12% harvested crop is already counted in the gross proceeds.
 
Treatment of Expenses 
Certain costs of doing business are allowed as deductions from gross monthly self-employment income. Self-employment income for is not computed the same as it is for Internal Revenue purposes. The IRS forms are only used for verification purposes.
Day Care Meal Expenses
Reimbursement, which may include the food stamp household’s own children, is available to providers who are registered or licensed. The reimbursement is not counted as income and is not an allowable deduction.
Some of the programs are:
•	Heartland
•	Nutrition for North Dakota Day Care Children
•	Dakota Nutrition
Households that are not reimbursed that derive income from day care may elect one of the following methods of determining the cost of meals provided to individuals. The household's choice must be clearly documented in the case file.
1.	Actual documented cost of meals.
2.	A standard daily amount of $5.00 per individual regardless of the number of hours of care provided. 
3.	Current reimbursement amounts used in the Child and Adult Care Food Program.
 
 Breakfast	$1.04	
Lunch	1.92	
Supper	1.92	
Snacks	.57	
 
A maximum of two meals and one snack, or two snacks and one meal can be claimed per child, per day.
Allowable Expenses
The worker must determine if an expense is allowable based on whether the expense is part of producing income.
Example:
Veterinary expenses are allowed for a self-employment enterprise where livestock or animals are part of the operation. 
 This list is not all-inclusive.
•	Labor/wages paid to employees. A deduction is not allowed for wages paid to any household member.
•	Livestock related expenses.
•	Supplies and raw material.
•	Seed and plants.
•	Fertilizer and chemicals.
•	The interest portion of:
•	payments on business or operating loans
•	Payments on income producing real estate and capital assets such as equipment, machinery, and other durable goods.
Care must be taken to ensure that the interest portion of the payment is not doubled as the interest expense is shown on the income tax forms.
•	The principal portion of:
•	Payments on income producing real estate and capital assets, equipment, machinery, and other durable goods. 
Verification of the principal amount must be obtained from a source such as the sales contract that states the amount of the monthly/yearly payments on the income producing property or capital asset. The principal portion is not shown on the tax forms as it is not a deductible expense for income tax purposes. 
•	Insurance premiums (health insurance premiums are not allowed).
•	Taxes paid on income producing property.
•	Privilege taxes such as licensing fees, gross receipts and general excise tax that must be paid in order to earn self-employment income.
•	Business transportation costs.
•	Rental payments on income producing equipment. If an owner is renting equipment with an option to buy, the rent payments are allowed until the purchase is made.
•	Cost of repairs and maintenance.
•	Storage and warehousing charges.
•	Specific job related clothing (protective headgear for a beekeeper).
•	Shelter Costs
If a household’s home is on property connected to property used for self-employment, the worker must determine if the shelter costs and the self-employment costs can be separately identified. Prorating may be used to separately identify costs based on information from a mortgage lender, real estate tax record, Farm Service Agency documents, insurance premiums, etc.
o	If the costs of rent or mortgage, insurance, taxes, and interest can be separately identified or prorated,  the self employment costs are allowed as an exclusion in determining self-employment income.
o	If the costs of rent or mortgage, insurance, taxes, and interest are claimed as shelter costs only and not claimed as a self-employment cost of doing business, there is no deduction for self employment. 
o	If the costs of rent or mortgage, insurance, taxes and interest cannot be separated, no self-employment exclusion for insurance, taxes or interest on the mortgage payment may be allowed. 
•	Utility Costs
If a household’s home is on property connected to property used for self-employment, the worker must determine if the shelter costs and self-employment costs can be separately identified.
Self-employment households where utilities are measured and billed separately are entitled to the separately billed self-employment costs as a cost of doing business.
Self-employment households where there is only one meter must use the following to separately identify costs:  
•	Allow the total utility costs minus the appropriate mandatory utility standard as a self-employment cost of doing business.
Non-Allowable Expenses
The worker must determine if an expense is non-allowable based on whether the expense is part of producing income.
 	Example:
Wages paid to household members.
This list is not all-inclusive.
•	Expenses and net operating losses (NOL) from previous periods.
•	Federal, state and local income taxes, monies set aside for retirement purposes and other work related personal expenses such as transportation to and from work.
•	Depreciation/depletion - to allow these costs would result in an exclusion for amounts that are not actual costs to the household and would constitute an exclusion for the costs of income producing property and assets, which are otherwise not allowed.
•	Repayment of the principal of a bank loan. The loan was never counted as income and the repayments are not excluded as an expense. However, the household is given an exclusion for allowable expenses when purchases are made, even if they are paid for with a business, operating or personal loan.
•	Charitable contributions.
•	Penalties and fines.
Examples:
1.	An IRS penalty imposed on an owner for failure to pay an employee's Social Security tax is not an allowable cost of doing business. 
2.	Penalties imposed by the United States Department of Agriculture for failure to comply with planting and marketing programs are not allowable costs.
Capital Gains/Losses 
Capital gains from last year are counted as income only if they are anticipated to recur in the current year.
Proceeds from the sale of capital goods or equipment are calculated in the same manner as a capital gain for Federal income taxes.
The formula for calculating proceeds from the sale of capital goods or equipment is: 
sale price, minus the acquisition price which includes improvements and sales expenses such as a broker’s fees and commissions, plus any amount depreciated for federal income tax purposes.
Example:
A farmer purchased a tractor for $12, 000 five years ago and sold the tractor for $10,000. During the five-year period of ownership, he depreciated the tractor at a rate of $1,200 per year. The capital gain is computed as follows:
 
$10,000 sale price
-12,000 acquisition price 
+ 6,000 depreciated amount ($1200 per year x five years)
$ 4,000 actual gain from the sale of equipment

Capital gains resulting from the sale of land, buildings, or equipment that were not anticipated in the current year, are not counted if they were sold the year before the household applies.
Because net losses from prior periods are not an allowable deduction, net operating loss carryovers from prior years shown on current income tax forms cannot be used to offset self-employment income.

Offset of Losses  

Loss Other than Farm/Ranch
 
One self-employed business may offset a second self-employed business, but cannot offset any other type of income.
 
Example:
1.	A food stamp household contains a self-employed barber and a self-employed beauty operator. One business can offset the other business.
2.	A food stamp household contains a self-employed web designer operating at a loss and a self-employed farmer operating at a gain.  The loss from the web designer can offset the gain from the farm.  

Farm/Ranch Loss

After subtracting the allowable costs of producing income from farm/ranch self-employment income (including capital gains), if there is a loss it is averaged in the same manner as net income. 
 
The averaged farm/ranch loss is used to offset any other  countable income received by the household during the months over which it has been averaged. 
Example:
A farmer/rancher with a $6,000 self-employment loss, as determined by the most recent income tax return, is assigned a 12-month certification period. The $6,000 loss is divided by 12 and $500 per month is the averaged loss used to offset any other gross monthly countable income the household may receive.

Farm losses, not used to offset other countable income during the period over which they are averaged, are not carried over to a subsequent period.
 
The order of farm/ranch loss offset is: 
 
1.	Other self-employment income.
2.	Other income 
Example:
There is a monthly farm/ranch loss offset of $500. The household has other self-employment of $250 per month, regular earnings of $200 per month, and other unearned income of $90. Countable food stamp income is zero, arrived at as follows:

$-500 Farm/Ranch loss offset
  -250 Other self-employment income 
 +200 Regular earnings 
  + 90 Other unearned income unused
     -0- Countable food stamp income 
 
The offset applied in a given month is not to exceed the maximum offset for that month and may vary based on the household’s other countable income. 
 
Treatment of Specific Types of Payments 
1.	A federal gasoline tax credit is excluded from income. (It is a credit against tax liability.)
2.	A State gasoline tax refund is excluded from income on the basis that it is a non-recurring lump-sum payment.
The federal gasoline tax credit and the State gasoline tax refund may be combined on the same line of the tax form.
3.	Recaptured Depreciation and Recaptured Investment Credit: IRS allows self-employed persons to deduct depreciation on property, as a cost of doing business. 
Recaptured depreciation and recaptured investment credit are considered in the capital gain computations in the same manner as they are for federal income tax purposes.
4.	Patronage dividends are reported on tax forms. They are paid by cooperatives in cash or shares of stock. These dividends are similar to rebates paid based on the amount of goods bought or services used for the self-employment enterprise. Cash dividends are counted as income. 
5.	Royalty payments are counted as income.
6.	Farm Service Agency (FSA) cash payments are counted as earned self-employment income except for loans and payments made as the result of a Presidentially declared disaster. Farm loans are excluded from income.
7.	The Federal Crop Insurance Corporation (FCIC) insures producers against crop losses. An FCIC payment is a nonrecurring lump-sum payment. Unlike ASCS payments, the producer has to pay a premium for FCIC insurance. The federal government subsidizes the premiums.
8.	A crop insurance payment from a private company is excluded from income if it is paid as a nonrecurring lump-sum payment. If the insurance company pays the household in installments, the money is counted as income.

Boarding Home Income 	
 
Payments made by a boarder to a household providing the service are counted as self-employment income when the boarder is not included in the food stamp household. The household's cost of providing meals and lodging to the boarder is allowed as a deduction from the boarder's payment. 
The household may elect one of the following methods provided that the amount allowed as a cost of doing business does not exceed the payment the household receives from the boarder for meals and lodging: 
1.	The Thrifty Food Plan for a household size that is equal to the number of boarders.
2.	The actual verified cost of providing room and meals, if the actual cost exceeds the appropriate thrifty food plan. Only separate and identifiable costs of providing room and meals to the boarder are allowed when actual costs are used.
3.	If the household consists of a combination TANF/FS case, the household may choose to deduct a flat amount of $100 from gross income. If the household can verify expenses in excess of the $100 exemption, the actual expenses are allowed. 

The net non-commercial boarding household income is added to other income and treated the same as self-employment income.

Excel Workbook for 2004 Income Tax Guidelines
“Payments on the principal of the purchase price of income producing real estate and capital assets” must be provided by the recipient for Sections I. Gross Income – Farms and Section II. Gross Income – Other Self-Employment.  Normally this would be a copy of the year’s loan payment history listing both the principle and interest paid.  Since interest is allowed in another line of the sections, only the principle is allowed in this line.
The worker can use subsection D. Income for Child Care Assistance Cases.  This is to be used as Child Care Assistance does not need to differentiate between earned and unearned income.

Forms
Most of the income tax forms are used are used in only one section of the “ 2004 Income Tax Guidelines.”
Section I.	Gross Income  - Farms
Schedule F (Form 1040) Profit or Loss From Farming*
Section II.	Gross Income – Other Self-Employment
		Schedule C (Form 1040) Profit or Loss From Business
Section III.	Other Income 
		Schedule E (Form 1040) Supplement Income and Loss**
		Form 4835 – Farm Rental Income and Expenses
		Form 1065 U.S. Return of Partner ship Income
Schedule K – 1 (Form 1065) Partner’s Share of Income, Deduction, Credits etc. 
Form 1040 U.S. Individual Income Tax Return***
Section IV.	Income From Sale of Capital Items
		Form 4797 Sales of Business Property
  		Form 1040 U.S. Individual Income Tax Return***
Section V.	Royalty Income
		Schedule E (Form 1040) Supplement Income and Loss**
Section VI.	Partronage Dividends
		Schedule F (Form 1040) Profit or Loss From Farming*

*	Schedule F (Form 1040) Profit or Loss From Farming
Used in both I. Gross Income – Farms and VI. Patronage Dividend.
**	Schedule E (Form 1040) Supplement Income and Loss
Used in both III. Supplemental Income and V. Royalty Income.
***	Form 1040 U.S. Individual Income Tax Return
Used in both III. Other Income and IV. Income from the Sale of Capital Items.

2004 INCOME TAX GUIDELINE

 I.	GROSS INCOME - FARMS (use Schedule F)

	___________	Line 36.

- ___________		Line 5b.

- ___________		Minus line 8b (taxable 2004 crop insurance proceeds and certain disaster payments). 1/

- ___________		Minus line 8d (2003 deferred crop insurance proceeds and certain disaster payments). 1/

- ___________		Minus federal gas tax credit - 2003 IRS Form 1040, Line 67, if block b checked or State gas tax refund from 2002 North Dakota tax forms.  (See 1/ below.)

+ ___________	Plus line 16 (depreciation).

+ ___________	Plus non-allowable costs of doing business on line 34. 2/

+ ___________	Plus anticipated crop income. 3/

+ ___________	Plus the difference between line 6a and line 6b. 4/

-  ___________	Payments on the principal of the purchase price of income producing real estate and capital assets.
 	
= ___________	Total Net Income (enter minus figure as appropriate). 5/

Notes:

		1/	Farmers should be informed at the time of the certification interview that crop insurance proceeds and state gas tax refunds must be reported when they are received.  Crop insurance proceeds and state gas tax refunds are treated as lump-sum payments (430-05-30-55-30) when received.

Federal gas tax credits are identifiable from line 67 (with Block b checked) of Form 1040 for 2003.  State gas tax refunds are identifiable from line 6 of North Dakota Tax Department Form R 11, Motor Vehicle Fuel Tax Claim For Refund, for 2002.  Federal drought assistance payments are asset and income exempt.

 2/	If any non-allowable costs of doing business (430-05-30-55-15) are included in line 34 of Schedule F, they are added back into the income on this line.

	If utility costs from line 32 of Schedule F are not separately metered from home utility costs, allow the appropriate mandatory utility standard for the household’s residence and allow the total utility costs minus the appropriate mandatory utility standard as a self-employment cost of doing business (430-05-30-55-15).

	If shelter costs from lines 22, 23a and 31 of Schedule F are not separately identified or cannot be prorated, the rent/mortgage, insurance, taxes and interest are added back into the farm income on this line (430-05-30-55-15).

3/	This line is used only if line 8b of Schedule F contains an entry.  If so, determine the amount of crop income anticipated by the farmer from the land on which a crop loss was incurred in 2004 and enter that amount on this line.

		4/	Use this line only if line 6a is greater than line 6b.  If so, subtract line 6b from line 6a and enter the difference.

5/	If this line is a minus figure and the applicant meets the definition of a farmer or rancher at 430-05-30-55-10 and the household has other income, farm loss offset procedures at 430-05-30-55-25 may apply.

II.	GROSS INCOME - OTHER SELF-EMPLOYMENT (use Schedule C)

  ____________	C, line 29, tentative profit (loss).

+ ___________		Plus C, line 12 (depletion).

+ ____________	Plus C, line 13 (depreciation).

	+ ____________	Plus C-EZ, line 3.

+ ____________	Plus non-allowable costs of doing business on C, line 27. 1/

-  ____________	Payments on the principal of the purchase price of income producing real estate and capital assets.
	
= ____________	Total Net Income. 2/

Notes:

1/	If any non-allowable costs of doing business (430-05-30-55-15) are included in line 27 of Schedule C, they are added back into other self-employment income on this line.  Schedule C, Part V, details "Other Expenses" shown on line 27.  Also enter Schedule C-EZ non-allowable costs of doing business on this line.

	If utility costs from line 25 of Schedule C are not separately metered from home utility costs, allow the appropriate mandatory utility standard for the household’s residence and allow the total utility costs minus the appropriate mandatory utility standard as a self-employment cost of doing business (430-05-30-55-15).

	If shelter costs from lines 15, 16a and 23 of Schedule C are not separately identified or cannot be prorated, the rent/mortgage, insurance, taxes and interest are added back into the farm income on this line (430-05-30-55-15). 

2/	If the total net income is a minus figure, enter the minus figure only if the "other self-employment" loss is being used to offset other self-employment income.  Otherwise, enter zero.

III.	OTHER INCOME (use Schedule E, Forms 4835, 1065, and 1040)

  ____________	Schedule E, Part I, line 26. 

- ___________		Minus Schedule E, Part I, line 4, royalties, the "totals" column. 

+ ____________	Plus Schedule E, Part I, line 20, depreciation or depletion, the "totals" column.

+ ____________	Plus Schedule E, Part II, line 32.

+ ____________	Plus Schedule E, Part III, line 37.

	+ ____________	Plus Schedule E, Part V, line 40.

+ ____________	Plus Form 4835, line 12 (depreciation). 1/ 

+ ____________	Plus Form 4835, line 30, non-allowable costs of doing business. 2/ 

+ ____________	Plus Form 1065, line 16(c) times applicant's share of the partnership or corporation (depreciation). 3/ 

+ ____________	Plus Form 1065, line 17 times applicant's share of the partnership or corporation (depletion). 3/  

+ ____________	Plus Form 1065, line 20, non-allowable costs of doing business times the applicant's share of the partnership or corporation. 4/

+ ____________	Plus Form 1040, line 21 (other income). 5/

= ____________	Total Net Income (enter minus figure if appropriate). 6/

Notes:

1/	Use this line only if Schedule E, Part V, line 40, contains an entry.

2/	Use this line only if Schedule E, Part V, line 40 contains an entry.  If line 30 of Form 4835 contains any non-allowable costs of doing business (430-05-30-55-15), add them back into the partnership or corporation income on this line.

	If utility costs from line 28 of Form 4835 are not separately metered from home utility costs, allow the appropriate mandatory utility standard for the household’s residence and allow the total utility costs minus the appropriate mandatory utility standard as a self-employment cost of doing business (430-05-30-55-15).

	If shelter costs from lines 18, 19a and 27 of Form 4835 are not separately identified or cannot be prorated, the rent/mortgage, insurance, taxes and interest are added back into the farm income on this line (430-05-30-55-15).

3/	Use this line only if Schedule E, Part II, line 32 contains an entry.

4/	Use this line only if Schedule E, Part II, line 32 contains an entry.  If line 20 of Form 1065 contains any non-allowable costs of doing business (430-05-30-55-15), add them back into the partnership or corporation income on this line.

	If utility costs from line 20 of Form 1065 are not separately metered from home utility costs, allow the appropriate mandatory utility standard for the household’s residence and allow the total utility costs minus the appropriate mandatory utility standard as a self-employment cost of doing business (430-05-30-55-15).
	
5/	If line 21 of Form 1040 contains a carry-over loss (NOL) from prior years, do not enter the NOL.

6/	If this line is a minus figure and the applicant's rental or partnership income is from farming or ranching (when the applicant receives or anticipates to receive $1,000 or more from the business), and the household has other income, farm loss offset procedures at 430-05-30-55-25 may apply.

IV.	INCOME FROM SALE OF CAPITAL ITEMS (use Forms 4797 & 1040)

If this is an initial application and the applicant was not a food stamp participant during the year for which income taxes were filed, use only that income from the sale of capital items that can be reasonably anticipated to recur during the current year.

  ____________		Form 1040, line 13. 1/

- ____________	Minus Form 4797, line 4 gain from installment sale.

+ ____________	Plus Form 4797, Part II, line 17(g) - only if a gain is shown on this line. 2/

- ____________	Minus Form 4797, Part II, line 17(g) - only if a loss is shown on this line.

= ____________	Total Net Income (enter a minus figure if appropriate). 3/

Notes:

1/	If Form 1040, line 13 contains an entry and Form 4797, Part I, line 2, column (e) contains one or more entries, subtract the total of column (e) entries from the 4797, line 9 entry, and enter the total on this line (in place of the 1040, line 13 entry).

2/	If Form 4797, Part II, line 17(g) contains a positive entry and line 12(g) also contains a positive entry, use the following computation and enter the total of that computation in place of the Part II, line 17(g) entry.

			_____________	Form 4797, the total of all gains shown in column (g) of lines 10 through 16.
			
			- ________________    	Minus Part II, line 13(g).

			- ________________    	Minus Part II, column 10(e), all lines.

			+ _______________     	Plus Part III, line 20, all columns.

			- ________________    	Minus Part III, line 21, all columns.

			= _______________     	Total

3/	Policy at 430-05-30-55-10 describes the treatment of proceeds from the sale of land as a non-recurring lump-sum payment when they are received in a single payment rather than in installments.

As per that policy, if Form 4797, Part I, line 2 contains an entry because of a land sale in 2003 in which total proceeds were received in a single payment rather than in installments, any gain shown in column (g) of that entry should be subtracted from "Total Net Income" (or any loss shown in column (g) of that entry added to "Total Net Income"), and the adjusted total used in Section VI, INCOME COMPUTATION.

   V.	ROYALTY INCOME (use Schedule E)

= ____________	Part I, line 4, the "totals" column.

VI.	PATRONAGE DIVIDENDS (use Schedule F)

	= ____________  Part I, line 5b.

VII.	INCOME COMPUTATION

A.	Earned Income

Use this computation only if a household member spends more than 20 hours per week managing the property.
	
1.	_____________	Enter the total shown for Part I.

2.+	_____________	Add the total shown for Part II.

3.+	_____________	Add the total shown for Part III.

4.+	_____________	Add the total shown for Part IV.

	5.=   _____________		Total. 1/

	6. ÷  _____________		Divide the total of #5 by 12 to arrive at monthly earned income.
Notes:

1/	If this figure is a minus figure and the applicant meets the definition of a farmer or rancher at 430-05-30-55-10 and the household has other income, farm loss offset procedures at 430-05-30-55-25 apply.

B.	Unearned Income

Use this computation only if a household member spends less than 20 hours per week managing the property, including payments for land rent or CRP.

1.	_____________	Enter the total shown for Part III.

2.+	_____________	Add the total shown for Part IV.

3.=	_____________	Total. 1/

4. ÷	_____________	Divide the total of #3 by 12 to arrive at monthly unearned income.
	Notes:

1/	If this figure is a minus figure and the applicant's rental or partnership income is from farming or ranching (when the applicant receives or anticipates to receive $1,000 or more from that business), and the household has other income, farm loss offset procedures at 430-05-30-55-25 apply.

C.	Other Unearned Income

Unearned income from this subsection is counted in addition to earned and unearned income in A and B above.

1.	__________	Enter Royalty Income from Part V.

				2. +	__________	Enter Patronage Dividends from Part VI.
			
				3. =	__________	Total	

4. ÷ 	__________ 	Divide total by 12 to arrive at other monthly unearned income.

	D.		Income for Child Care Assistance Cases

			1.    __________	The amount in A 6

			2. + __________	The amount in B 4

			3. + __________	The amount in C 4

			4. = __________	Total monthly self-employment income for Child Care Assistance
ANTICIPATED SELF-EMPLOYMENT WORKSHEET

  I.	GROSS INCOME

 1.	___________	Sale of livestock and other items purchased for resale.
 2.	+___________	Sale of depreciable goods or equipment.
 3.	+___________	Sale of non-depreciable assets.
 4.	+___________	Sale of livestock raised.
 5.	+___________	Sale of produce raised.
 6.	+___________	Sale of grain raised.
7.	+___________	Sale of other products raised (milk, eggs, etc.).
 8.	+___________ 	Cash distributions from cooperatives.
 9.	+___________ 	Agricultural program payments.
10.	+___________ 	Commodity credit loans.
11.	+___________	Machine work.
12.	+___________	Rental income.
13.		Other self-employment income (specify).
	+a.___________	________________________________.
	+b.___________	________________________________.
	+c.___________	________________________________.

 II.	INCOME DEDUCTIONS
 1.	  ___________	Cost of livestock and other items purchased for resale.
 2.	+___________	Cost or other basis of depreciable goods or equipment sold.
 3.	+___________	Cost or other basis of non-depreciable assets sold.
 4.	+___________	Sales costs.
 5.	+___________	Breeding fees.
 6.	+___________	Chemicals and fertilizer.
 7.	+___________	Feed purchased.
 8.	+___________	Seed purchased.
 9.	+___________	Freight, trucking.
10.	+___________	Gasoline, fuel, oil.
11.	+___________	Insurance (include only business related insurance).
12.	+___________	Labor hired (do not include wages or salaries paid to members of the food stamp household).
			13.	+___________	Conservation expenses and land clearing.
14.	  ___________	Machine hire.
15.	+___________	Interest paid (do not include non-business related loans).
16.	+___________	Rent of farm or pasture.
17.	+___________	Repairs, maintenance.
18.	+___________	Storage, warehousing.
19.	+___________ 	Supplies purchased.
20.	+___________ 	Taxes on income producing property.
21.	+___________ 	Utilities (do not include utilities paid on the home).
22.	+___________ 	Veterinary fees, medicine.
23.	+___________ 	Payments on the principal of the purchase price of income producing real estate and capital assets.
			24.			Other expenses (specify).
		+a.___________	________________________________.
		+b.___________  	________________________________.
		+c.___________	________________________________.
		+d.___________  	________________________________.

=	____________	TOTAL DEDUCTIONS

 III.	ROYALTY INCOME

___________		Enter royalty income.

IV.	PATRONAGE DIVIDENDS

			___________		Enter patronage dividends.
 
V.	INCOME COMPUTATION

	A.	Earned and Unearned Income.
			1.	___________	Enter total shown for Part I.
	2. -  ___________	Subtract total shown for Part II.
	3.=  ___________	Total.
	4.÷  ___________	Divide the total of #3 by 12 to arrive at monthly income.

Use the amount shown in #4 above as earned income if the household spends 20 hours or more per week managing the property.  Use as unearned income if less than 20 hours per week are spent managing the property.

B.	Other Unearned Income.

Unearned income from this subsection is counted in addition to earned or unearned income in A above.

1.	___________	Enter Royalty Income from Part III.
2.	+___________Enter Patronage Dividends from Part IV.
	3. 	÷___________Divide total by 12 to arrive at other monthly unearned income.