Deduct business expenses from gross self-employment income.
Allowable self-employment business expenses include, but are not limited to:
- transportation expenses required for operation of the business;
- space rental;
- salaries for employees other than the client;
- replacement of stock;
- purchasing inventory;
- raw materials;
- seed and fertilizer;
- principal and interest payments for purchase of income-producing real estate, capital assets, equipment, machinery, and other durable goods;
- insurance premiums;
- taxes paid on income-producing property;
- repairs; and
- cost of meals or the Day Care Meal Standard.
Business expenses do not include:
- personal transportation or commuting expenses;
- net losses from previous periods; and
- federal, state, and local income taxes, money set aside for retirement purposes, and other work-related expenses (such as transportation to and from work). These expenses are covered by the earned income deduction.
NOTE: See PM 13-02-03-a and WAG 13-02-03-a on Budgeting Self-employment Income.
- The client's records may serve as proof of income and expenses or the client may choose to use Self-Employment Record (Form 2790). Accept the client's records or Form 2790 as proof of income and expenses unless the information is questionable. If the information provided by the client is questionable, request additional documentation.
- Allow a prorated amount of shelter expenses as business expenses if the client's house is used for self-employment. Expenses include:
- Base the prorated share on the number of rooms used for the self-employment business. For example, if one room of a 6-room house is used for business purposes, then 1/6th of the shelter expenses can be claimed as a business expense.
Example: Ms. S uses one room of her 6-room house for her business. Her mortgage payment, which includes taxes and insurance, is $600. Actual utility bills total $120. Allow one sixth of her mortgage and utilities as a business expense ($100 mortgage plus $20 utilities equals $120 total business expense).
Allow $500 as housing costs ($600 minus $100 prorated mortgage expense equals $500). Because she is billed for heat, allow the Air Conditioning/Heating Standard.
- Treat the full amount of any capital gain as available income even if only 50% of the proceeds are subject to federal tax.
Transportation expenses include the ordinary and necessary costs of all the following:
- getting from one workplace to another;
- visiting business clients or customers;
- going to a business meeting away from the regular workplace; and
- traveling from home to a temporary workplace when there is one or more regular places of work.
Do not allow the cost of transportation between the client's home and their regular workplace. These costs are personal commuting expenses. If a client operates a home-based business and must drive to customers as part of its service, transportation expenses may be allowed.
Example 1: Mr. T operates a printing business out of rented office space. He uses his van to deliver completed jobs to his customers. The cost of the round-trip transportation between Mr. T's customers and his print shop is an allowable business expense. The cost of transportation from Mr. T's home to the office is not an allowable deduction.
Example 2: Ms. K is a T-shirt designer. She operates a business out of her home. When an order is complete, Ms. K makes the delivery to the customer. The cost of the round-trip transportation between Ms. K's home and her customers is an allowable business expense. When a client uses a vehicle for both business and personal purposes, divide the expenses between business and personal use. Divide the expense based on the number of miles driven for each purpose.
Example 3: Ms. B owns a flower shop. She drives her van 2,000 miles during the month. 1,600 miles were for delivering flowers to customers and 400 miles were for personal use. Ms. B may claim only 80% (1,600 ÷ 2,000) of the cost of operating the van as a business expense.
Day Care Meal Standard
A SNAP unit with self-employment income from day care may choose to use either actual documented costs of meals or the Day Care Meal Standard as a business expense. If the client chooses to use actual documented costs, the expense allowed may exceed the Day Care Meal Standard amounts. If the standard is used, no more than 2 meals and one snack provided daily to each child may be allowed. The Day Care Meal Standard amounts are:
Lunch or Supper: $2.40
Example: Ms. M babysits for one child. She feeds the child breakfast, lunch, and 2 snacks. Ms. M opts to use the Day Care Meal Standard instead of actual documented costs. Allow $4.39 per day ($1.28 for breakfast, + $2.40 for lunch, + $.71 for snack = $4.39 total). Only the cost of one snack may be allowed.