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February 16, 2009

Net business income (NBI)

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Definition

The amount of income from self-employment  income after ordinary and necessary business expenses.
The net business income is the amount  on which the self-employed individual must pay self-employment taxes.

The net business income is determined from the individual’s Schedule C or Schedule F

Referring Cite

IRC § 1402(a), IRS Publication 560

Additional Helpful Information

  • Contributions cannot be based on a net-loss
  • For SEP and qualified plans, net earnings from self-employment is gross income from trade or business (providing the self-employed individual’s  personal services are a material income-producing factor) minus allowable business deductions. Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for one-half of the individual’s  self-employment tax.
  • For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for the self-employed individual.
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