Sole proprietorships are businesses that are owned by one individual, the owner assumes all liability.
Example 1: Sole Proprietorships with Tax Form
Consider the client’s income and expenses from their own tax return. If the income is representative from the tax form, you will use the verification provided.
- Take the annual gross income and allow a 50% deduction if the client declares business expenses.
- Gross receipts or sales minus returns and allowances will be found on Line 3 of Schedule C. (For Schedule C-EZ, use Line 1, gross receipts of the C-EZ. Still allow the 50% if they have expenses).
- Code monthly amount in the self-employment tab.
Joe Palmer, during his interview for SNAP benefits, declares that he is self-employed with construction work. He has owned his business for the past 3 years. He provided his last year’s tax form 1040 and Schedule C. He says that he is making about the same amount of money as he did last year.
From this example, Joe Palmer had an annual gross income of $14,250 on line 3 on the Schedule C. He declares 50% business expense. His monthly income after after the 50% deduction and proration is $593.75 and should be coded in the Monthly Self-Employment block (F64).
Example 2: Sole Proprietorships with Month by Month Statements
If a tax form is not available, or if the tax form is not representative of the current self-employment income, consider a log of gross income and expenses for the months the client was self-employed.
- If the current income is representative, you will need to review monthly income statements provided by the client.
- You will total up all self-employment income for the months the client was self-employed. If the client declares that have $0 income in any month, and the reason is something that could occur again, you would add the zero months into the total.
- You would average the total amount to obtain the monthly amount declared self-employment income.
- You would ask the client if they have any business expenses to determine whether or not to allow the 50% business expense deduction for self-employment income. If the client declares business expenses, you would divide monthly amount by 2, and code result in the Monthly Self-Employment block (F64). Document the calculation in case notes.
Rex Rawlins visits the local Human Services Center (HSC) on June 15th to apply for SNAP benefits. During the interview, Rex declares that he is self-employed as a landscaper and his income fluctuates from month to month. He began his business in the month of January. He has not filed income taxes on his business yet as it is a new venture. He did provide a month by month statement of his wages. He declares that he has business expenses.
Rex provided the following written income statement:
- January 2019 = $400
- February 2019 = $650
- March 2019 = $1020
- April 2019 = $1300
- May 2019 = $0
- June 2019 = $100 so far
His declared reason for May 2019 $0 income is that his truck was damaged in a wreck and it was in the repair shop for most of the month. As this type of event could occur again, the May month is considered in the calculation.
Document calculation in case notes, example shown here:
Rex stated that he is self-employed as a landscaper and declared business expenses. He started his business 01/01/19. He provided ledgers for complete months January 2019 through May 2019.
- Jan 2019 $400
- Feb 2019 $650
- March 2019 $1020
- April 2019 $1300
- May 2019 $0
Total $3370/5 = $674 ½ Business Expense = $337
From this example, the average self-employment income monthly (for complete months January 2019 – May 2019) after rounding is $674. With 50% business expense, total is $337. Enter $337 into the Monthly Self-Employment block (F64).
Note: Remember to calculate the business expenses (if declared) first; and then enter the monthly self-employment in the Monthly Self-Employment block. Nothing is entered in the F66 and C40 blocks.
- Q1. Client is a self-employed truck driver. His truck broke down one month ago, and he does not have the money to repair the truck. He states that he still considers himself to be self-employed but has no idea when he will be able to afford to get his truck back in service. He has made $0 income in the last month. What is the best way to anticipate self-employment earnings at this time?
- A1. Since the client is not able to repair his truck at this time and does not when he will be able to resume truck driving, the worker should count $0 self-employment income at this time.
- Q2. Client started a self-employment business on March 18. He applied for initial SNAP benefits on September 20 and has provided his business records of income and expenses for July, August, and September. The entire month of August has zero income as he was ill and unable to work. He has provided medical verification of his illness. Would we calculate his income and expenses using the three months of records, which would include one entire month of zero income?
- A2. With self-employed households, the goal is to work towards annualization which would include all circumstances that have occurred such as illness, slow business, etc. In this instance, you would need to obtain all business records from the months of March, April, May, June, July, and August and average all months except September which has not yet ended.
- Q3. Why do we allow the initial month of income / expenses of new self-employment business?
- A3. This is a part of the self-employment income and expenses and should be considered.
- Q4. Does the tax return have to be a “filed” return or just a “prepared” return to be able to use as verification?
- A4. It can be either a “filed” return or a “prepared” return. We can also accept their records of income / expenses.
- Q5. Client has started up a new self-employment business detailing cars. He started this business two weeks ago and has now applied for SNAP. He made $0 income last week and $50 this week. The month is not over yet. What is the best way to anticipate self-employment earnings at this time?
- A5. Since the month is not over yet and this is a self-employment business that the client has just started up this month, the worker should count $0 self-employment income at this time. Client should be told to keep record of monthly income, and at mid-certification renewal, the worker will average the income over the number of months received. Also, the worker needs to ask the client at the time of the mid-certification renewal if the client claims business expenses and then give a 50% deduction if the client claims expenses.
- Q6. Is selling items on EBAY considered self-employment?
- A6. If the client is selling on EBAY and doing this as a business, then it would be considered self-employment income. However, people who are selling off personal items periodically that they previously owned such as outgrown kids clothing, extra appliances, etc., would not be considered as self-employed.