7 AAC 100.172 - Self-employment income

(a) Nonpersonal costs of doing business allowed under this section may not be deducted from income received from the production or sale of goods or services unless the department has determined that the individual is self-employed under this section. An individual is self-employed if the individual

(1) has a business license to engage in that work, as required by AS 43.70, or any other license, permit, or certificate necessary to perform that work as required by a state or local government; or

(2) files annual federal tax returns showing that the income is from self-employment.

(b) For the purposes of this section, an individual is considered an employee and not self-employed if another individual or business is responsible for providing workers' compensation insurance, making contributions under 26 U.S.C. 3101 - 3128 (Federal Insurance Contributions Act (FICA)), or completing and submitting federal income tax withholding forms.

(c) Unless otherwise provided in this section, nonpersonal costs of doing business that may be deducted must be identifiable, reasonable, and necessary. Nonpersonal costs of doing business include

(1) payment of interest on business loans;

(2) rent of business property;

(3) utilities;

(4) heat;

(5) taxes on business purchases if not already included;

(6) maintenance and repair of rental property if necessary to keep the property rented;

(7) bookkeeping costs;

(8) costs of merchandise, tools and equipment necessary to produce income;

(9) wages and benefits paid to employees; and

(10) the direct costs of reasonable and necessary nonpersonal transportation.

(d) The department will consider a crew member of a fishing vessel who is receiving a share of the profit to be self-employed and a crew member receiving a wage to be an employee. For a self-employed fisherman, the nonpersonal costs of doing business that are identifiable, reasonable, and necessary include the cost of

(1) boat engine oil and fuel;

(2) boat and motor repairs;

(3) normal boat and motor maintenance;

(4) rain clothing;

(5) bait;

(6) a commercial fishing license;

(7) employee labor;

(8) replacement or repairs of all types of fishing nets, not including lead line or float line;

(9) year-round boat moorage fees, including boat stall and grid fees; and

(10) utilities to maintain the vessel during the nonwork season.

(e) Nonpersonal costs of doing business do not include loan payments on the principal of a loan to purchase capital assets, equipment, machinery, and other durable goods. However, if those items are purchased on an installment plan, the interest paid as part of each installment payment is a nonpersonal cost.

(f) Nonpersonal costs of doing business do not include

(1) an amount claimed as depreciation or a loss for federal income tax or other purposes;

(2) the cost of personal and business entertainment; or

(3) the cost of personal transportation.

(g) For the purposes of this section, a payment on the principal of a real estate mortgage on income-producing property is not a nonpersonal cost of doing business. However, interest paid on an installment contract for the purchase of income-producing property and the tax paid on that property, are considered nonpersonal costs. For a household whose mortgage payment represents an investment in income-producing property, the interest portion of that mortgage payment, the tax on that property, and any other identifiable expenses are considered nonpersonal costs if the individual can separately identify those costs that apply to the portion of the property used in the self-employment enterprise.

(h) Regardless of whether a self-employed individual receives income monthly or less often than monthly, the nonpersonal costs of doing business allowed under this section are deducted from the income received even if those costs are incurred while the individual is not actually working, or are received in a month in which there is no self-employment income. For example, January boat storage fees and engine repair bills are allowed as nonpersonal costs of doing business, even if the boat only produces income in June.

(i) For a self-employed individual receiving income less often than monthly, the allowable, reasonable, and necessary costs of doing business are calculated prospectively on a calendar-year basis. The annual anticipated total of nonpersonal costs of doing business is subtracted from the anticipated annual income received from the production or sale of goods or services. The resulting self-employment income is then prorated in accordance with 7 AAC 100.174.

(j) For the purpose of determining self-employment income for the current and future self-employment period, the department will use the prior year's actual self-employment income for an applicant who applies before or during the current self-employment period, or the current year's actual self-employment income for an applicant who applies after the current self-employment period. When the self-employment enterprise has existed for less than a year, the department will average the past self-employment income and project that average to the coming year. If a major change in an individual's circumstance has occurred that indicates that the self-employment income of the previous year will be substantially different from that of the coming year, the department will estimate future self-employment income by using the applicant's own estimates and additional information or projections from other individual or governmental sources.

(k) For an individual who receives self-employment income monthly or more frequently than monthly, the anticipated nonpersonal costs of doing business for the month are added to any nonpersonal costs of doing business that occur in some other month but that are costs that also apply to the month being anticipated. For example, a salesperson who sells year-round may deduct in August 1/12 of the cost of an annual business license purchased in January.

(l) If a self-employed individual also has earned or unearned income, the nonpersonal costs of doing business allowed under this section are not deducted from that income.

Notes

7 AAC 100.172

Eff. 7/20/2007, Register 183

Authority:AS 47.05.010

AS 47.07.020

AS 47.07.040