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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.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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SIMPLE 401(k) Plan

Definition A SIMPLE 401(k) plan is a 401(k) plan  established by a small business for it’s employees. Earnings accrue on a tax-deferred basis and distributions

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