Self Employment Training Interpreting Tax Forms and ACES Records to Accurately Determine Countable Income Sole Proprietorship Farming Food Stamps Partnership TANF ACES Records Offsets Rental Income SE Gains & Losses MaineCare S Corporation

Introduction This training will help you become familiar with interpreting tax returns of self-employed clients and determining their countable income. At the end of this training you will be able to: Identify the business type Request the proper tax forms Interpret those forms based on Food Stamps, MaineCare, and TANF policy Enter self-employment data correctly into ACES

Overview Eligibility Workers must determine countable income from the tax return of self-employed clients. Identifying the correct forms and correct information can be confusing. Correct information must be entered into ACES so that countable income can be determined. This requires an understanding of the Self-Employed Detail screen.

Working with Tax Forms Clients must file different tax forms based on their business type, but the information we need is the same: Gross Income Cost of Doing Business including Depreciation Depreciation Accept information on Tax Forms. Do not question deductions. If the Form itself appears questionable, see your Supervisor.

Principal Payments on Business Assets Allowable self-employment expense for Food Stamps only. Principal payments are not listed on Tax Forms. Monthly principal payments must be annualized like other self-employment data recorded in ACES.

Business Use of the Home Sometimes a portion of the household expenses are used as business expenses. In Food Stamps, this portion should not also be used as a shelter cost. The individual is still entitled to the SUA when a portion of utilities is used as a business expense.

Business Types You may encounter various business types: Sole Proprietorship Partnership S Corporation C Corporation The most common business type owned by our clients is a Sole Proprietorship.

Sole Proprietorship Business is owned by the individual. Income and assets of the business are owned by the individual. Generally files a Schedule C with Form 1040. An individual with rental income may file a Schedule E.

Partnership Two or more individuals share profit and loss of the business. The partnership agreement defines ownership of income and assets. Files a Form 1065 Partnership return, Schedule K-1 that distributes profit and loss to partners, along with Form 1040.

S Corporation Corporation owned by 1 or more individuals. May be known as a Sub-S or LLC. If more than 1 owner, profit or loss of the business is shared. All earnings must be claimed by the individuals on their individual return. The stock is not counted as a personal asset. Files Form 1120S Return for S Corporation along with Form 1040.

C Corporation Ownership can range from 1 to millions of individuals. All earnings may not be passed to owners each year. Count only what is passed on. Assets are not countable as individual assets if the client is active working in this self-employment business.

Policy Comparisons While most self employment policy is Food Stamps Policy Comparisons TANF ACES While most self employment policy is consistent across programs, there are some differences. The Policy Comparison for Self Employment Chart highlights some of these differences. Specific examples that we will discuss, include: Depreciation Principal Payments on Business Assets In Home Business Expenses Offsetting Self-Employment Losses MaineCare

Ex A: Sole Proprietor with Profit Depreciation is added back for Food Stamps and TANF. Principal Payments on Business Assets is allowed for Food Stamps only. Expenses for Business Use of the Home cannot be used as shelter expenses in the Food Stamp budget. See Example A handouts for applicable tax forms, ACES records, and budgeting details.

Ex B: S/E loss with S/E gain All programs allow a self-employment loss to offset a self-employment gain. Other critical elements: Depreciation, Principal Payments on Business Assets, and Expenses for Business Use of the Home See Example B handouts for applicable tax forms, ACES records, and budgeting details.

Ex C: S/E loss offset with earnings Food Stamps and TANF do not allow a self-employment loss to be offset with earnings. MaineCare allows the offset. See Example C handouts for applicable tax forms, ACES records, and budgeting details.

Ex D: Farming Farming enterprise with $1,000 or more in gross sales are treated differently in Food Stamps. This program allows a farming loss to offset other earned and unearned income. TANF and MaineCare treat farming the same as other types of self-employment. Filed on a Schedule F instead of a Schedule C. See Example D handouts for applicable tax forms, ACES records, and budgeting details.

Ex E: Rental Income Rental income may be earned or unearned. This client works less than 20 hours a week managing the property, so the income is considered unearned for Food Stamps. This income was filed on a Schedule E, so the income is considered unearned for SSI-Related MaineCare. See Example E handouts for applicable tax forms, ACES records, and budgeting details.

Ex F: S Corporations All the corporate earnings are claimed by the owners. Compensation of Officers and wages earned from the corporation are recorded as earnings. Other critical elements to consider: Depreciation, Principal Payments on Business Assets, and Expenses for Business Use of the Home See Example F handouts for applicable tax forms, ACES records, and budgeting details.

Ex G: Partnerships The client’s percentage of ownership is used to attribute: Gross Income, Cost of Doing Business, Depreciation and Principal Payments on Business Assets See Example G handouts for applicable tax forms, ACES records, and budgeting details.

When there are no tax forms… Draw from available business records. Client anticipates income and creates records for future review. Do not require self-employment forms to be submitted monthly. Monthly self-employment forms can be submitted upon review or at six-month report.

(Look behind the blue link to be sure!!!) Summary There are many business types, however Sole Proprietorships are the most common. Clients file different tax forms based on their business type, but the type of information we need is the same: Gross Income Cost of Doing of Business Including Depreciation Depreciation Principal Payments (not found on tax forms) Self Employment rules vary by program, however, if these figures are entered appropriately in ACES, it will accurately calculate Countable Income for each program. (Look behind the blue link to be sure!!!)

Questions? ACES Records TANF Food Stamps MaineCare Partnership Farming SE Gains & Losses Sole Proprietorship Partnership Farming S Corporation Offsets ACES Records Rental Income MaineCare