NORTH DAKOTA DEPARTMENT OF HUMAN SERVICES
BISMARCK, NORTH DAKOTA

January 17, 2008

IM 5027

TO:		County Social Service Directors
Economic Assistance Policy Regional Representatives
Economic Assistance Policy Quality Control Reviewers

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 2007 income tax guidelines, sample tax forms, and an anticipated income self-employment worksheet that may be helpful when income tax forms are not used.  Also attached is the electronic version in Excel of the self-employment worksheets. Instructions are included as part of the worksheets.

Food Stamps

Self-Employment Income Tax Guidelines – 430-05-30-55-40
 
Child Care Assistance Program

Self-Employment Income Tax Guidelines – 400-26-20-05-13
 
Policy Change

430-05-30-55-15 – Treatment of Expenses for Food Stamps and 400-26-20-05-03 – Treatment of Self-Employment Expenses for Child Care, the rates to be used for the Child and Adult Care Food Program reimbursement rates have been updated as follows.  These rates are effective when calculating self-employment income based on the 2007 income tax guidelines.

	Breakfast	1.11
	Lunch		2.06
	Supper		2.06
	Snacks		 .61

2007 INCOME TAX GUIDELINE

 I.	GROSS INCOME - FARMS (use Schedule F)

	___________	Line 36.

- ___________	Line 5b.

- ___________	Minus line 8b (taxable 2007 crop insurance proceeds and certain disaster payments).  1/

- ___________	Minus line 8d (2006 deferred crop insurance proceeds and certain disaster payments).  1/

- ___________	Minus federal gas tax credit - 2006 IRS Form 1040, Line 70, if block b checked or State gas tax refund from 2005 North Dakota tax forms.  (See 1/ below.)

+ ___________		Plus line 16 (depreciation).

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

+ ___________	Plus non-allowable utility costs on line 32.  3/

+ ___________	Plus non-allowable shelter costs on lines 22, 23a and 31.  4/

+ ___________		Plus anticipated crop income.  5/

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

-  ___________	Payments on the principal of the purchase price of income producing real estate and capital assets, equipment, machinery and other durable 
				goods.  7/
 	
= ___________	Total Net Income (enter minus figure as appropriate). 8/

Notes:

		1/	Federal gas tax credits are identifiable from line 70 (with Block b checked) of Form 1040 for 2006.  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 2005.  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.

3/	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).

4/	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).

5/	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 2007 and enter that amount on this line.

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

7/	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 purchase price of income producing real estate and capital asset, equipment, machinery and other durable goods.  The principal portion is not shown on the tax forms as it is not a deductible expense for income tax purposes  (430-05-30-55-15).

8/	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/

+ ____________	Plus non-allowable utility costs on line 25.  2/

+ ____________	Plus non-allowable shelter costs on lines 15, 16a and 23.  3/

-  ____________	Payments on the principal of the purchase price of income producing real estate and capital assets, equipment, machinery and other durable goods.  4/
	
= ____________	Total Net Income.  5/

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.

2/	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).

3/	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).

4/	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 purchase price of income producing real estate and capital assets, equipment, machinery and other durable goods.  The principal portion is not shown on the tax forms as it is not a deductible expense for income tax purposes (430-05-30-55-15).

5/	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 4835, line 28, non-allowable utility costs.  3/

+ ____________	Plus Form 4835, line 18, 19a and 27, non-allowable shelter costs.  4/

+ ____________	Plus Form 1065, line 16(c) times applicant's share of the partnership or corporation (depreciation).  5/ 

+ ____________	Plus Form 1065, line 17 times applicant's share of the partnership or corporation (depletion).  5/  

+ ____________	Plus Form 1065, line 20, non-allowable costs of doing business times the applicant's share of the partnership or corporation.  6/

+ ____________	Plus Form 1065, line 20, non-allowable utility costs.  7/

+ ____________	Plus Form 1040, line 21 (other income).  8/

= ____________	Total Net Income (enter minus figure if appropriate).  9/

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.

3/	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).

4/	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).

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

6/	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.

7/	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).
	
8/	If line 21 of Form 1040 contains a carry-over loss (NOL) from prior years, do not enter the NOL.

9/	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 2006 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.

			If the amount in D4 is a negative number, use zero for self-employment income when adding it to other income.
ANTICIPATED SELF-EMPLOYMENT WORKSHEET 2007

  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, equipment, machinery and other durable goods.
			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.

For Child Care Assistance Program, it makes no difference if the income is earned or unearned.

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.