Minnesota Department of Human Services Video Conference

MFIP & Food Support SELF-EMPLOYMENT TRAINING SCRIPT

Dates presented

March 9, 10 & 16, 2004

AGENDA Self-employment training overview Preparing to certify a self-employed person Self-employment – Definition Self-employment – Assets Self-employment – Determining the gross earned income Capital Gains & Losses Allowable & Non-allowable costs of doing business In-home business expenses Offsetting self-employment loss Verifying income/expenses Conversion of Self-employment income Using tax forms 15 MINUTE BREAK WP Specialty Bakery Business example (use prepared tax forms) RENTAL INCOME (use prepared tax forms) DAYCARE/ BUSINESS USE OF HOME (use worksheets) AVON & MARY KAY examples (use worksheets) 15 MINUTE BREAK Farming Policy Farming Example (use prepared tax forms)

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Training handouts Hand outs should include

1. Self-employment Combined Manual Sites 2. Self-employment Certification Tip Sheet 3. Self employment – Definitions 4. MFIP Self-employment Worksheet 5. Self Employment Report Form Tax Forms

• 1040 – Page 13 Schedule C Schedule D Schedule E Schedule F

K-1 1120 4797

6. WP Specialty Bakery Example 7. Rental Example 8. Day Care/Business Use of Home Example and worksheets 9. Avon Example and worksheet 10. Mary Kay Example and worksheet 11. Farm Example

NOTE: As indicated in the course definition, in this training we will only be covering the MFIP and Food Support program requirements.

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Preparing to certify a self-employed person Self-employed households are often difficult to work with for varied reasons:

confusing books or ledgers, incomplete records, or no records deductions claimed that combine business and personal expenses difficult to understand tax forms and employers statements infrequency of self-employed applications

The first two handouts in your packets are documents that hopefully will help make certifying a self- employed person a little easier.

SELF-EMPLOYMENT COMBINED MANUAL SITES is a reference list of the combined manual sites that deal with self-employment.

SELF-EMPLOYMENT CERTIFICATION TIP SHEET gives some valuable tips for dealing with self-employed households.

Self-employment – Definition A self-employed person is one who normally would:

Determine their own work schedule Not have FICA or taxes withheld Not be covered by workman’s compensation

There are exceptions to the above list as explained on the SELF-EMPLOYMENT – RELATED TERMS handout. While most self-employed persons fit the above list, there are those that may be self-employed and have an employer – real estate sales persons, and independent contractors are two examples. The handout also has definitions of other common self-employment terms that may be used in this training.

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Self-employment – Assets CM 15.09, 15.12,15.12.06, 15.39 & 15.42 When certifying self-employment households it is important to know that all programs exclude some assets used by the client for self-employment. Programs may be different in how they treat some assets. Self-employment asset exclusions MFIP For all self-employment businesses normally exclude:

Assets needed to produce earned income. Except for non-homestead real estate. The property can be excluded if a repayment agreement is signed and a lien is executed against the property. Installment contracts, including contracts for deed, producing income with their fair market value. This means the terms of the contract are being met. Business loans Separate bank accounts used for operating self- employment business if used annually. Motor vehicles essential to self-employment business operation. Liquid assets needed to operate the business.

Food Support For all self-employment businesses normally exclude:

Real property which annually produces income consistent with it’s fair market value. Any licensed vehicle necessary to produce income (taxi, fishing boat) or that annually produces income consistent with its fair market value. Installment contracts, including contracts for deed, producing income with their fair market value. This means the terms of the contract are being met.

The time spent on assets will be limited. For more detailed information on self-employment assets refer to the Combined Manual section 0015. Self-employment – Determining the gross earned income from self-employment The gross earned income from self-employment is the total gross receipts minus the allowable costs of doing business Once you have determined the gross earned income from self-employment, add it to other earned and unearned income to compute the unit’s total gross income. Apply appropriate disregards and deductions to determine net income.

A couple of things to remember when determining gross earned self-employment income are: • Exclude from the gross receipts any loans made to the self-employment business.

Loans are not counted as income (CM0017.06) • In rare instances self-employment income will be considered unearned income. The

most common example is rental income. Normally to be considered earned income, a person needs to perform labor or a service as a condition on receiving the income. For rental income, there is an hour limit – MFIP – 43 hours per month, Food Support – 20 hours per week. (CM0017.15.33.30).

• For some programs, a loss from a self-employment business can offset other income.

Capital Gains & Losses (CM0017.15.54)

Capital gains and capital losses are Internal Revenue Service (IRS) terms for proceeds from the sale of capital assets. The gain or loss is the difference between the purchase and selling price minus allowable expenses. Capital assets are assets that have a useful life of more than one year. EXCLUDE PROCEEDS FROM THE SALE OF ASSETS - capital gains and losses, regardless of whether the asset was excluded are excluded as income. EXCEPTION: If the client is in the business of selling assets. For example a farmer who holds grain until the prices change, the capital gain or loss is self-employment and COUNTS as income. Use TAX FORMS to verifying capital gains and losses: ! Schedules C and F are considered self-employment tax forms. Capital gains and

losses are recorded on these and include items such as the sale of livestock or grain.

! Schedule D and 4797 are the IRS Capital Gains and Losses forms. This includes excluded and counted capital gains or losses.

> The client must clarify whether capital gains or losses are from the sale of an asset or from self-employment.

> In addition to capital gains and losses from the sale of assets, Schedule D includes capital gain distributions. Capital gain distributions are dividends from stock or mutual funds. See CM0017.15.42 (Interest and Dividend Income).

If the client did not file tax forms, determine the capital gain or loss using self-employment income procedures. See CM0017.15.33 (Self-employment Income). A couple of things to remember:

• For MFIP, proceeds from the sale of assets, while excluded as income may be counted as assets. See CM 0015.09

• For Food Support, count capital gains and losses only if the client will continue to have capital gains and losses in the certification period.

Allowable costs of doing business (CM0017.15.33.06) Self-employed persons may deduct certain costs or expenses directly related to the cost of doing business. Check each expense to determine if it is necessary to the business. If the expense is reasonable and not prohibited, allow it as a deduction from the gross receipts. Always document the reasons for allowing or not allowing an expense. EXAMPLE OF AN ALLOWABLE EXPENSE: Client owns a day care business and runs an ad in the local newspaper. The cost of the ad is an allowable expense. EXAMPLE OF A NON-ALLOWABLE EXPENSE: That same day care provider buys rolls and coffee for her staff every morning. Since the expense isn’t directly related to the cost of doing business, it is not allowed. Some common allowable expenses for both MFIP and Food Support include: ! Interest on mortgages and loans ! Employee wages (cannot be a unit member) ! FICA paid on an employee’s wages ! Payment on employee’s workers compensation and unemployment insurance ! Livestock/veterinary/breeding fees ! Raw material ! Seed and fertilizer ! Maintenance and repairs which are not capital expenditures ! Tax return preparation ! License fees, franchise fees, and professional dues ! Tools/supplies (not capital expenditures) ! Fuel/transportation not covered by flat rate deduction ! Advertising ! Meals away from local work site (truckers, sales people, etc.) ! Property expenses (rent, insurance, taxes, utilities. etc.) ! Postage ! Attorney fees allowed by the IRS ! Tuition as allowed by IRS publication 508 For MFIP

Allow the purchase cost of inventory, at the time of sale. For Food Support Also allow payments on the principal of the purchase price of income-producing real estate and capital assets, equipment, machinery and other durable goods. Non-allowable costs (CM17.15.33.15) There are some costs or expenses that are directly related to the business that are not allowed under the MFIP or Food Support programs, even though they may be allowed by the IRS. The following self-employment expenses are not allowed for either MFIP or Food Support: ! Federal, state and local income taxes ! The employer’s own share of FICA ! Money set aside for the self-employed person’s own retirement ! Work related personal expenses For MFIP do not allow: ! Payments on principal of loans ! Purchase of capital assets ! Charitable contributions ! Depreciation ! Wages or other benefits paid to a unit member ! Any expenses not allowed by the IRS (Tax forms instructions for that business type) ! Cost of building an inventory (deduct cost of a product only after it sells) ! Personal business and entertainment expenses For Food Support do not allow: ! Net Loss from another period ! Charitable contributions ! Depreciation ! Wages or other benefits paid to a unit member ! Personal business and entertainment expenses

Next is a more depth discussion on transportation and business use of home self-employment business allowable deductions.

Transportation expense (CM0017.15.33.12) Self- employed persons may deduct the cost of transportation as a self-employment expense in certain circumstances. EFFECTIVE 1/2004 THE FLAT RATE DEDUCTION FOR TRANSPORTATION FOR ALL PROGRAMS IS 37.5 CENTS PER MILE. DO NOT allow the cost of travel between the self-employed person’s home and place of business as a business expense. Personal use of transportation is not a business expense. For MFIP Use the flat rate deduction for transportation expenses. To compute have the unit record odometer readings, dates, travel destinations and the purpose of each trip. For FOOD SUPPORT The client can chose either • the flat rate deduction

or • itemized transportation expenses. If the flat rate is chosen, advise the unit to record odometer readings, dates, travel destinations and the purpose of each trip. If itemization is chosen, allow only verified transportation expenses. Advise the client to keep receipts for expenses incurred. A tax form is also acceptable verification. When itemizing, allowable transportation expenses may include: ! gas & oil costs ! parking fees ! car insurance ! car repairs In-home business expenses (CM0017.15.33.09)

For self-employment businesses operated from the home, you can allow the costs for the portion of the home used exclusively for the business as a deduction. These rules apply to all the programs with some special computations for the Food Support program. Verify business versus shelter costs by using the client’s tax records or determine a reasonable ratio using a comparison of: ! the number of rooms used in the business compared to the total number of rooms

in the home

OR ! the total square footage of the house to the square footage used for business Allowable Deductions: ! rent ! real estate taxes and insurance ! mortgage interest ! utilities ! repairs made to specific areas of the home used for business Consider areas used for inventory storage or in-home child care as exclusive business use even though the client does not use them exclusively for business if: ! For inventory storage, the client=s home is the only work station. Base the

business ratio on SQUARE FOOTAGE. ! For in-home child care, the client=s home is licensed for child care or is exempt

from licensing. Base the business ratio on SQUARE FOOTAGE. In addition to applying the business/home ratio, determine the proportion of time the unit uses the area for child care. Prorate the expense accordingly.

Food Support If a unit=s self-employment utilities are NOT METERED SEPARATELY from the shelter utilities: ! the unit may prorate the actual utility expenses between the shelter deduction and

the self-employment business expenses or

! the unit may claim the standard utility allowance as a shelter expense with NO expense allowed as the self-employment business expense.

NOTE: Actual utilities CANNOT be claimed for the business and the utility standard claimed for shelter expenses unless there are separate meters. If the unit HAS A SEPARATE METER FOR THE BUSINESS, the unit may deduct the actual utility expense as a business expense and claim the full standard utility allowance as a shelter expense on the HEST panel. Determining business to home ratio

For businesses located on the same property as the home use the county assessor to determine the business to home ratio. DO NOT rely on the tax returns for this ratio. To determine the business portion use the estimated market value (EMV) of the business property divided by the EMV of the entire property (including the home and building site.)

For a farmer, use the estimated market value (EMV) of home and building site divided by the estimated market value of the entire property (including the home and building site.) Example: EMV of home & building site $ 37,000 EMV of land and buildings $ 110,290 To determine ratio:

Home ratio - $ 37,000 divided by $ 110,290 = .34 or 34% Business ratio 100% minus 34% = 66%

Offsetting self-employment loss (CM0017.15.33.18) In some instances you can apply losses from one self-employment business against another self-employment business. Unfortunately the policy is different for MFIP and Food Support.

MFIP For MFIP, use the loss from a PERSON’S business to offset income from another business of that same person.

DO NOT USE one PERSON’S business loss to offset non-self-employment income or another PERSON’S business income.

Food Support

UNITS (rather than INDIVIDUALS) operating more than one self-employment business may use the loss from one business to offset self-employment income from another business.

Farming exception: Units that expect to receive $1000 or more of annual gross income from farming may use a farm loss to offset other earned or unearned income. (This includes social security, SSI, Unemployment Insurance, etc.)

Verifying income/expenses (CM0010.18.09) Verify: ! income as a condition of eligibility. ! expenses to allow them as deductions. Use BUSINESS RECORDS to verify income and expenses:

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! For programs that require you to use MONTHLY self-employment income and expenses.

! When the client has not filed a tax return for the most recent tax year, OR ! If the business is a new self-employment venture Use business records such as: ! Copies of daily, weekly, or monthly ledgers. ! Invoices. ! Itemized receipts. ! Purchase orders. ! Copies of customer receipts. ! Transportation logs. ! Canceled checks. ! Copy of business checking account statement. ! County agency forms. ! Records from the business/farm service/administrations ! Statements from the client's customers. When completed appropriately and completely the DHS-3336 Self-employment Report Form can be used as verification of income and expenses. All entries need to be reviewed and any questionable item needs to be verified. Conversion of Self-employment income CM 0017.15.33.03 MFIP For MFIP always use a 12-month rolling average to budget monthly income and always begin the budget in the month of application. The first step in conversion is to determine how long the self-employment business has been in operation. The conversion process is different for those cases where the business has been operating for at least 12 months than it is for those operating less than 12 months. DHS has provided a useful tool to help work through this process – the DHS 3337 – MFIP SELF-EMPLOYMENT INCOME WORKSHEET. See handout.

Conversion for businesses operating for at least 12 months To determine the amount of income to count in the application month, compute an average from the most current tax report prior to the application. Enter this amount on line 12 (application month) of the worksheet. Also enter this amount (on lines 1- 11) for the prior 11 months. The rolling average will start with month 13. Each successive month’s income will be determined by adding in the actual self-employment income and expenses reported each month, while dropping the first

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month of the average set. This adding and dropping repeats each month. Always only use 12 months of data in the average set. Conversion for businesses operating for less than 12 months The amount of income counted in the application month is an average based on the income and expenses from the number of months the business has been in operation. Successive months are determined by adding each month’s actual income and expenses and determining a new average. This process repeats until you have 12 months of data. Once you reach 12 months, you go to the rolling average. Add the actual self-employment income and expenses reported each month, while dropping the first month of the average set. This adding and dropping repeats each month. Again always only use 12 months of data in the average set.

FOOD SUPPORT Food Support self-employment income is not budgeted in the same way that MFIP self-employment income is budgeted. There are two methods to budgeting income for self-employment. For businesses where all income and expenses occur on a monthly basis, the income is budgeted each month. For businesses where either income or expenses occur less often than monthly, past income is averaged to determine a monthly amount. If the client files a tax return, use the average monthly income, if appropriate and anticipated to reoccur, from the most recent filing to anticipate income. If the business has been in operation less than 12 months, average income for the number of months it has been operating, adding each month’s income and expenses until you reach 12 months. Use this 12-month average until the client files a new tax return covering 12 calendar months. NOTE:

If the self-employment income is seasonal income, for MFIP the client may choose the rolling average method or converting to monthly income or use actual income each month. For Food Support, if the seasonal income is the unit’s largest/only source of income and is used to cover the needs for a full year, average the income over a year time period. If the income is not the largest source of income average the income over the number of months the seasonal work occurs.

If there are major changes in the self-employment income, for MFIP calculate a new rolling average beginning with the 1st month of the change. The change must affect the nature and scale of the business. For FOOD SUPPORT, a significant change

means you project and calculate a new average each month until there is a new 12 month average.

Using tax forms in certifying self-employed persons

In some instances you will be using tax forms from the previous tax year to help anticipate income for the next certification period. The thought process you go through will apply to all self-employment businesses where you need to average to get the appropriate amount of income. Be aware of the following tax forms – the list is not inclusive. 1040 US Individual Income Tax Return Form 1040 - Schedule C – Profit or Loss From Business Form 1040 - Schedule D – Capital Gains and Losses Form 1040 - Schedule E – Supplemental Income and Loss Form 1040 - Schedule F – or Loss From Farming Form 4797 – Sales of Business Property 1065 US Return of Partnership Income Form 1065 - Schedule K1 Partner’s Share of Income, Credits, Deductions, etc 1120 US Corporation Income Tax Return 1040 US Individual Income Tax Return When reviewing the 1040, be aware of the following items: ! Wages - indicates a possibility of income other than the self-employment. If the self-

employer pays the wages to someone in the household, do not count as income or as a business expense.

! Interest income - may indicate the unit has unreported assets. ! Business/farm income - refer to schedule C (business) or Schedule F (farm). ! Rental real estate, royalties, partnerships, S corporations, trust, etc. - refer to

Schedule E, 1065 and the K-1, or the 1120. ! Capital gains - refer to Schedule D and 4797. Do not use the income figures listed on the 1040 form. This form is just a guide to alert you to possible income in the unit. Gross receipts and deductions are found on Schedules C, E (rental, etc.), F, and 4835 (farm rental).

1065 US Return of Partnership Income & Form 1065 Schedule K-1 – Partner’s Share of Income, Credits, Deductions, etc When there is a partnership, the relevant tax forms are the 1065 (Income of Partnership) and K-1 (Income of the Individual). This information is transferred to Schedule E and then to the 1040. The K-1 is the form that shows your client’s share of the income and deductions of the partnership. Lines 1-25 reflect the partners share of the income credits or deductions without reference to limitations on losses or adjustments. 1120 US Corporation Income Tax Return An owner of an S corporation IS considered a self-employed person. An owner or employee of a C corporation or other corporation IS NOT considered a self-employed person. If the person receives a salary from the corporation: ! He/she is considered an employee of the corporation and is eligible for the earned

income disregard. ! The person would not be eligible to deduct any self-employment expenses. ! Relevant tax forms for corporations are: ! 1120 or 1120s (Income of Corporation) This information is transferred to Schedule

E and then to the 1040. Again, tax forms are to be a guide for anticipating a year's income. Do not automatically take last year's tax form figures and use them. Reasons for questioning a form and the client's situation include: ! the client may have lost or gained part of a business. ! the client may be in a new (though related) business. ! portions of last year's income may not repeat this year. ! the taxes may only reflect a part of a year's business.

Significant changes may occur when: ! there is termination of self-employment ! changing from one self-employment business to another ! making changes to a continuing enterprise

Depending on the situation you may be able to retain some of the previous figures while making some necessary adjustments to others, or you may have to treat it as if the change created a new business.

We are going to spend a little time and go through Schedule C, concentrating on the expenses and discussing if they all are allowable.

Whenever using tax forms to help determine cost of running a business review all entries to insure they are related to the business. The following is a list of some of the allowable deductions you may need to manipulate. Schedule C - Allowable/Non-allowable Deductions Expenses Allowed Transportation/Car and truck expenses:

The expenses indicated should be business related. Insurance (other than health):

Inquire what the insurance figure represents and determine the amount business related coverage. Obtain verification if necessary.

For an in-home business, the portion of insurance used for shelter deduction can be computed by applying the home ratio to the current billing. If the client provides an itemized policy where the business and shelter coverage portions of the premium are clearly identified, separate the deductions and allow according to the coverage.

Interest:

Inquire as to the number of loans and what the loans were for. Obtain verification if the loans are for anything besides the business. For an in-home business, apply the business ratio to the interest figure on loans covering both home and business. Allow 100% of the interest figure on loans that only involve business related financing. The shelter deduction would be computed by applying the home ratio to the entire obligated monthly payment (interest and principal).

Repairs and maintenance:

Inquire whether the figures represent any repairs or maintenance to the home or places other than the business and only allow the business amount.

Taxes and licenses:

Inquire as to what the tax figure represents and determine the amount of the real estate tax. The tax figure may contain amounts for taxes other than real estate. For an in-home business apply the business ratio to the real estate figure and allow as an expense. The shelter deduction would be computed by applying the home ratio to the current billing.

Utilities:

Discuss expenses with the unit and determine a business to home usage ratio. If the figure on the tax form is a percentage of expenses and it appears appropriate, allow the amount as a deduction.

If the figure on the tax form reflects 100% of utilities paid, apply the usage ratio and allow the business portion. If the utility costs cannot be separately identified, the unit may not claim actual utility costs as a shelter expense.

Wages:

Wages are only allowable when paid to a non-household member. Other expenses:

Inquire as to what these figures might represent and use only the allowable deductions. Example: charitable contributions are not allowable deductions, but subscriptions to business related magazines are allowable.

Expenses Not Allowed Depreciation: Add this figure back into the net profit. Loan Payments:

For MFIP Do not allow payments made on the principal of business loans. Payments are allowed for FOOD SUPPORT.

Miscellaneous:

Do not allow losses from previous years, charitable contributions, payments on personal IRA's, Keogh and retirement plans, and any portion of expenses applicable to the home.

Things to remember: • Use Tax Returns to verify income and business expenses for programs that require

you to annualize or average income. • DO NOT use the tax form if they are questionable or there has been a significant

change. (A significant change must be inconsistent with the regular fluctuations of business.)

• Remember that although a tax return may be a basis to determine self-employment income, the Internal Revenue Service (IRS) and assistance programs do not use the information in the same way.

The IRS requires self-employed people to file a tax return when their earnings are at a certain level. However, if the client has not filed a tax return, you cannot require the client to file. 15 MINUTE BREAK WP Specialty Bakery Business example (use prepared tax forms) RENTAL INCOME example (use prepared tax forms) DAYCARE/ BUSINESS USE OF HOME (use worksheets) AVON & MARY KAY examples (use worksheets) 15 MINUTE BREAK Farming (CM00 0015.09, 0017.15.33.24) Farmers are self-employed. They may work full time, part time, or as hobby farmers. Assets MFIP Same as all other self-employment, no special provisions. FOOD SUPPORT There are special provisions for excluding assets for farmers.

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For FARMERS exclude assets (including land, equipment, licensed vehicles and supplies) essential to the self-employment of a unit member engaged in the business of farming. After a farmer quits farming, continue to exclude any essential self-employed farming assets including licensed vehicles that were needed for farming for 1 year.

Income Common types of farm income include: ! Proceeds from sale of crops, livestock, or products. ! Production from livestock. ! Income from home produced food. ! Soil conservation payments. ! Proceeds from machine rental, including wages to the farmer/operator. ! Capital gains or losses. Deduct from farm income all allowable expenses associated with producing the income. Separate farm and shelter expenses using farm records and information from the mortgage lender, tax assessor, or other farm service office. When it is not possible to separate farm and shelter expenses, determine the ratio of farm property to home property and multiply the expense by the ratio. MFIP Follow provisions for other business types. No special provisions for farmers FOOD SUPPORT Average farm income and expenses over a 12-month period. Use the unit's most current tax return as a guide. If the tax return is not available or does not reflect true circumstances, use the client's farm records. If the farm income is a new business or has greatly increased or decreased from the income shown on the tax return or farm records, ! estimate the earnings ! calculate a new average each month until there is a 12 month average ! use the average figure for 12 months or until the client files a new tax return form,

whichever is shorter

Using tax forms in certifying self-employed farmers In most instances you will be using tax forms from the previous tax year to anticipate the income for the next certification period. Be aware of the tax forms indicated below – the list is not inclusive. 1040 - Individual Income Tax

Schedules D - Capital Gains and Losses Schedule F - Profit or Loss from Farming 4797 – Sales of Business Property 1065 – Partnership Income 1065 - Schedule K-1 – Partner’s Share of Income 1120 – Corporation Schedule F As with Schedule C we will take a closer look at the expenses on Schedule F, and whether they are allowable. Transportation/Car and truck expenses:

The expenses indicated should be business related. Insurance:

Inquire what the insurance figure represents and determine the amount of property coverage. Obtain verification if necessary.

The shelter deduction can be computed by applying the home ratio to the current billing. If the client provides an itemized policy where the business and shelter coverage portions of the premium are clearly identified, separate the deductions and allow according to the coverage.

Mortgage interest:

Inquire as to the number of loans and what the loans were for. Obtain verification if the loans are for anything besides the business. Apply the business ratio to the interest figure on loans covering both home and business. Allow 100% of the interest figure on loans that only involve business related financing. The shelter deduction would be computed by applying the home ratio to the entire obligated monthly payment (interest and principal).

Other Interest:

Inquire what this figure represents and determine the amount of business related financing. Obtain verification if necessary. Allow 100% of the interest figure on loans that involve only business related financing. Apply business ratio to interest on loans covering both the home and business.

Labor hired:

Wages are only allowable when paid to a non-household member.

Repairs: Inquire whether the figures represent any repairs or maintenance to the home and do not allow the home amount.

Taxes:

Inquire as to what the tax figure represents and determine the amount of the real estate tax. The tax figure may contain amounts for taxes other than real estate. Apply the business ratio to the real estate figure and allow as an expense. The shelter deduction would be computed by applying the home ratio to the current billing.

Utilities:

Discuss expenses with the unit and determine a business to home usage ratio. If the figure on the tax form is a percentage of expenses and it appears appropriate, allow the amount as a deduction.

If the figure on the tax form reflects 100% of utilities paid, apply the usage ratio and allow the business portion. If the utility costs cannot be separately identified, the unit may not claim actual utility costs as a shelter expense.

Other expenses: Inquire as to what these figures might represent and use only the allowable deductions. Example: charitable contributions are not allowable deductions, but subscriptions to agricultural magazines are allowable.

MFIP: Also allow purchase cost of inventory, at the time of sale. FOOD SUPPORT: Also allow payments on the principal of the purchase price of income-producing real estate and capital assets, equipment, machinery, and other durable goods. Expenses Not Allowed Depreciation: Add this figure back into the net farm profit. Loan Payments:

For an MFIP case do not allow payments made on the principal of business loans. This is an allowable deduction for FOOD SUPPORT cases.

Miscellaneous:

Do not allow losses from previous years, charitable contributions, payments on IRA's, Keogh and retirement plans, and any portion of expenses applicable to the home.

Farming self-employment loss offset (CM0017.15.33.18)

MFIP Use the farming loss from a PERSON’S business to offset income from another self-employed business of that person. DO NOT USE one PERSON’S farm loss to offset non-self-employment income or another PERSON’S self-employment business income. FOOD SUPPORT UNITS operating more than one self-employment business may use the loss from one business to offset self-employment income from another business. Units that expect to receive $1000 or more of annual gross income from farming may use a farm loss to offset other earned or unearned income. (This includes MFIP, social security, SSI, Unemployment Insurance, etc.) Farm losses and the earned income deduction/work Expense Deduction (Food Support) When computing self-employment income and there is a farm loss, the earned income deduction is computed by: 1. Computing the total gross farm self-employment income and subtract the allowable

costs of doing business, then 2. Compute the total gross non-farm self-employment and subtract the allowable costs

of doing business and subtract the farm losses, if any. 3. If there is any net profit, apply the earned income deduction to this amount. If there is not any net self-employment profit, there is no earned income deduction from self-employment income. FARM examples (use tax returns and handouts)