IRS Publication 334 — Tax Guide for Small Business (Schedule C)
This is the passage the answer relied on, shown in the document's own words. The highlighted text is the exact excerpt quoted — extracted verbatim by the citation system, so it cannot be fabricated.
Open official source at page 44 ↗
“Additional Medicare Tax. A 0.9% Additional Medicare T ax may apply to you if your net earnings from self -em- ployment exceed a threshold amount (based on your filing status).”
Generally, if you produce, purchase, or sell merchandise in your business, you must keep an inventory and use an accrual method for purchases and sales of merchandise. Exception for small business taxpayers. If you are a small business taxpayer, you can choose not to keep an inventory, but you must still use a method of accounting for inventory that clearly reflects income. If you choose not to keep an inventory, you won’t be treated as failing to clearly reflect income if your method of accounting for inventory treats inventory as non -incidental material or supplies, or conforms to your financial accounting treatment of inventories. If, however, you choose to keep an inventory, you must generally use an accrual method of accounting and value the inventory each year to determine your cost of goods sold in Part III of Schedule C (Form 1040).
Small business taxpayer. You qualify as a small business taxpayer if you (a) have average annual gross receipts of $31 million or less for the 3 prior tax years (indexed for inflation), and (b) are not a tax shelter (as defined in section 448(d)(3)). If your business has not been in existence for all of the 3 -tax-year period used in figuring average gross receipts, base your average on the period it has existed, and if your business has a predecessor entity, include the gross receipts of the predecessor entity from the 3 -tax-year period when figuring average gross receipts. If your business (or predecessor entity) had short tax years for any of the 3 -tax-year period, annualize your business’ gross receipts for the short tax years that are part of the 3 -tax-year period. See Pub. 538 for more information.
Treating inventory as non -incidental material or supplies. If you account for inventories as materials and supplies that are not incidental, you deduct the amounts paid or incurred to acquire or produce the inventoriable items treated as non -incidental materials and supplies in the year in which they are first used or consumed in your operations. Inventory treated as non -incidental materials and supplies is used or consumed in your business in the year you provide the inventory to your customers. Financial accounting treatment of inventories. Your financial accounting treatment of inventories is determined with regard to the method of accounting you use in your applicable financial statement (as defined in section 451(b)(3)) or, if you don’t have an applicable financial statement, with regard to the method of accounting you use in your books and records that have been prepared in accordance with your accounting procedures. Changing your method of accounting for inventory. If you want to change your method of accounting for inventory, file Form 3115, Application for Change in Accounting Method. See Change in Accounting Method , later.
Excerpt shown from a longer document — use the official source button above to read the complete publication.