If you have more than one trade or business, you must combine the net earnings from each business to determine your net self-employment income. A loss that you incur in one business will offset your income in another business.

You can deduct one-half of your self-employment tax in figuring your adjusted gross income. This is an income tax adjustment only. It does not affect your net earnings from self-employment or your self-employment tax.

If your small business is incorporated as an S-Corporation you must make sure that you pay yourself through payroll, with related withholdings, and not simply take distributions from the corporation as your compensation. You will be subject to fines and penalties for failure to pay Social Security and Medicare taxes if your compensation is totally in the form of distributions.

Even if you do not quality for a home office deduction, you may be allowed to take a depreciation deduction or elect a section 179 deduction for furniture and equipment you use in your home for business or work as an employee.

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Last modified February 26, 1999