Specialized Returns and Taxpayers
Business owners, investors, and special situations
Sole proprietors report business income and expenses on Schedule C and pay self-employment tax on 92.35% of net earnings, subject to the Social Security wage base. Partners and S corporation shareholders receive Schedule K-1 and must respect basis limits: a partner's basis cannot go below zero, and losses suspend until basis is restored. S corporation owner-employees must take reasonable compensation before distributions. Rental real estate goes on Schedule E; the $25,000 passive loss allowance phases out between $100,000 and $150,000 of MAGI.
Other specialized filers: farmers use Schedule F and may use income averaging; military members exclude combat pay and may deduct moving expenses; clergy report a housing allowance and usually pay SE tax; household employers file Schedule H. Divorced or separated parents attach Form 8332 to release a dependency claim.
Traps. Nonresident aliens generally cannot claim the standard deduction and file Form 1040-NR; FDAP income is taxed at 30% unless a treaty reduces it. U.S. citizens abroad may exclude foreign earned income, indexed annually, but must meet the bona fide residence or 330-day physical presence test; FBAR (FinCEN 114) is due April 15 with an automatic October extension.
Worked example. Net SE earnings of $40,000: the SE tax base is $40,000 × 92.35% = $36,940; tax at 15.3% is about $5,652, with half deductible above the line.