Treatment of Expenses 430-05-30-55-15

(Revised 10/01/06 ML3044)

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Certain costs of doing business are allowed as deductions from gross monthly self-employment income. Self-employment income for food stamp purposes is not computed the same as it is for Internal Revenue purposes. The IRS forms are only used for verification purposes.

 

Day Care Meal Expenses

Reimbursement, which may include the food stamp household’s own children, is available to providers who are registered or licensed. The reimbursement is not counted as income and is not an allowable deduction.

 

Some of the programs are:

• Heartland
• Nutrition for North Dakota Day Care Children
• Dakota Nutrition

 

Households that are not reimbursed that derive income from day care may elect one of the following methods of determining the cost of meals provided to individuals. The household's choice must be clearly documented in the casefile.

1. Actual documented cost of meals.
2. A standard daily amount of $5.00 per individual regardless of the number of hours of care provided.
3. Current reimbursement amounts used in the Child and Adult Care Food Program. These are:

 

Breakfast	$1.06
Lunch	1.96
Supper	1.96
Snacks	.58

 

A maximum of two meals and one snack, or two snacks and one meal can be claimed per child, per day.

 

Allowable Expenses

The worker must determine if an expense is allowable based on whether the expense is part of producing income.

 

Example:

Veterinary expenses are allowed for a self-employment enterprise where livestock or animals are part of the operation.

 

This list is not all-inclusive.

• Labor/wages paid to employees. A deduction is not allowed for wages paid to any household member.
• Livestock related expenses.
• Supplies and raw material.
• Seed and plants.
• Fertilizer and chemicals.
• The interest portion of:
• payments on business or operating loans
• payments on income producing real estate and capital assets such as equipment, machinery, and other durable goods.

Care must be taken to ensure that the interest portion of the payment is not doubled as the interest expense is shown on the income tax forms.

• The principal portion of the purchase price of payments on income producing real estate and capital assets, equipment, machinery, and other durable goods.

Verification of the principal amount must be obtained from a source such as the sales contract that states the amount of the monthly/yearly payments on the income producing property or capital asset. The principal portion is not shown on the tax forms as it is not a deductible expense for income tax purposes.

• Insurance premiums (health insurance premiums are not allowed).
• Taxes paid on income producing property.
• Privilege taxes such as licensing fees, gross receipts and general excise tax that must be paid in order to earn self-employment income.
• Business transportation costs.
• Rental payments on income producing equipment. If an owner is renting equipment with an option to buy, the rent payments are allowed until the purchase is made.
• Cost of repairs and maintenance.
• Storage and warehousing charges.
• Specific job related clothing (protective headgear for a beekeeper).
• Shelter Costs

If a household’s home is on property connected to property used for self-employment, the worker must determine if the shelter costs and the self-employment costs can be separately identified. Proration may be used to separately identify costs based on information from a mortgage lender, real estate tax record, Farm Service Agency documents, insurance premiums, etc.

• If the costs of rent or mortgage, insurance, taxes, and interest can be separately identified or prorated, the shelter costs are allowed as a deduction and the self employment costs are allowed as an exclusion in determining self-employment income.
• If the costs of rent or mortgage, insurance, taxes, and interest are claimed as shelter costs only and not claimed as a self-employment cost of doing business, then the shelter costs are allowed as a deduction only.
• If the costs of rent or mortgage, insurance, taxes and interest cannot be separated, no self-employment exclusion for insurance, taxes or interest on the mortgage payment may be allowed, and no portion of the mortgage payment, taxes or interest may be allowed as shelter costs.
• Utility Costs

If a self-employment business is in a household’s home, the household must be allowed the appropriate mandatory utility standard as a shelter cost deduction and no self-employment cost of doing business.

 

Examples:

Day care providing in home day care, beauty shop operated out of the home, Avon or Tupperware claiming a portion of home for business.

 

If a self-employed household’s home is on property connected to property used for self-employment, the worker must determine if the shelter costs and self-employment costs can be separately identified.

 

Self-employment households where utilities are measured and billed separately are entitled to the appropriate mandatory utility allowance for its residence and to the separately billed self-employment costs as a cost of doing business.

 

Self-employment households where there is only one meter must use the following to separately identify costs:  

• Allow the appropriate mandatory utility standard for the household's residence, and
• Allow the total utility costs minus the appropriate mandatory utility standard as a self-employment cost of doing business.

 

Non-Allowable Expenses

The worker must determine if an expense is non-allowable based on whether the expense is part of producing income.

 

Example:

Wages paid to household members.

 

This list is not all-inclusive.

• Expenses and net operating losses (NOL) from previous periods.
• Federal, state and local income taxes, monies set aside for retirement purposes and other work related personal expenses such as transportation to and from work. The 20% earned income deduction allows for these expenses.
• Depreciation/depletion - to allow these costs would result in an exclusion for amounts that are not actual costs to the household and would constitute an exclusion for the costs of income producing property and assets, which are otherwise not allowed.
• Repayment of the principal of a bank loan. The loan was never counted as income and the repayments are not excluded as an expense. However, the household is given an exclusion for allowable expenses when purchases are made, even if they are paid for with a business, operating or personal loan.
• Charitable contributions.
• Penalties and fines.

Examples:

1. An IRS penalty imposed on an owner for failure to pay an employee's Social Security tax is not an allowable cost of doing business.
2. Penalties imposed by the United States Department of Agriculture for failure to comply with planting and marketing programs are not allowable costs.