Figure 12-1. Can I Use the Optional Methods? Summary: This contains two flowcharts. The first one is used to determine if the taxpayer can use the nonfarm optional method
to figure net
earnings from self-employment.Start. START here to determine if you can use the nonfarm optional method.Decision (1). Are your net nonfarm profits less than $1,733?
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IF Yes Continue To Decision (2)
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IF No Continue To Process (a)
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Decision (2). Are your net nonfarm profits less than 72.189% of your gross nonfarm income?
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IF Yes Continue To Decision (3)
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IF No Continue To Process (a)
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Decision (3). Were your actual net earnings from self-employment $400 or more in at least 2 of the 3 tax years before 2005?
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IF Yes Continue To Decision (4)
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IF No Continue To Process (a)
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Decision (4). Have you previously used this method less than 5 years? (Note: There is a 5-year lifetime limit.)
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IF Yes Continue To Process (b)
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IF No Continue To Process (a)
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Process (a). You cannot use the nonfarm optional method.
Process (b). You can use the nonfarm optional method. See Publication 334.Footnote: If you use both optional methods, see Using Both Optional
Methods for limit on the amount to report.
End. This is the end of the flowchart.Summary: The second flowchart is used to determine if the taxpayer can use the farm optional
method to figure net earnings from
self-employment.Start. START here to determine if you can use the farm optional method.Decision (1). Is your gross farm income $2,400 or less?
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IF Yes Continue To Process (a)
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IF No Continue To Decision (2)
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Decision (2). Are your net farm profits less than $1,733?
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IF Yes Continue To Process (a)
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IF No Continue To Process (b)
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Process (a). You can use the farm optional method. (see footnote) See Table 12-1.Footnote: If you use both optional methods, see Using
Both Optional Methods for limit on the amount to report.
Process (b). You cannot use the farm optional method.
End. This is the end of the flowchart.
