How do I elect to defer self-employment tax for tax year 2023?
New Part III has been added to Schedule SE to allow self-employed persons to figure a maximum amount of self-employment tax payments which may be deferred. All maximum deferral amounts will be carried to Schedule 3 (Form 1040), and the total amount that you may elect to defer may be further reduced.
Follow these steps to make the deferral election in ProConnect Tax:
- Open the tax return.
- From the left of the screen select Taxes, and choose Other Taxes.
- Select Self-Employment Tax (Schedule SE).
- Check the box labeled Elect to defer maximum allowed amount of Schedule SE or H taxes to 12/31/21 or 12/31/22.
- The Schedule SE, Part III will still be calculated and the deferral amount will transfer to Schedule 3, line 12e.
Federal 1040 Schedule E: Real Estate Professional and Self-Employment Tax
ProConnect Tax won't flow Real Estate Professional rental income to the Schedule SE automatically. You need to go to the Taxes section and then to the screen Self-Employment Tax (Schedule SE) screen and adjust the self-employment income.
The program is following the guidance provided by the IRS. Per the IRS Instructions for Schedule E:
- If you were a real estate professional, complete Schedule E, line 43.
- Line 43: If you were a real estate professional (see instructions), enter the net income or (loss) you reported anywhere on Form 1040, Form 1040-SR, or Form 1040-NR from all rental real estate activities in which you materially participated under the passive activity loss rules.
- A passive activity is any business activity in which you did not materially participate and any rental activity, except as explained later. If you are a limited partner, in most cases, you aren't treated as having materially participated in the partnership's activities for the year. The rental of real or personal property is a rental activity under the passive activity loss rules in most cases, but exceptions apply. If your rental of property isn't treated as a rental activity, you must determine whether it is a trade or business activity and, if so, whether you materially participated in the activity for the tax year. See the Instructions for Form 8582 to determine whether you materially participated in the activity and for the definition of “rental activity.”
- Before you begin, see Line 3 and Line 4, later, to determine if you should report your rental real estate and royalty income on Schedule C or Form 4835, instead of Schedule E.
- Rental real estate income generally isn't included in net earnings from self-employment subject to self-employment tax and generally is subject to passive loss limitation rules. Electing qualified joint venture status doesn't alter the application of the self-employment tax or the passive loss limitation rules.
