Final answer:
A net operating loss can be used to reduce self-employment income.
Step-by-step explanation:
The correct answer is False. A net operating loss can be used to reduce self-employment income. When a self-employed individual incurs a net operating loss, they can carry it forward to future years and offset it against any future self-employment income. This allows them to reduce their taxable income and potentially lower their tax liability in those future years.
A net operating loss occurs when a taxpayer’s allowable tax deductions exceed their taxable income within a tax year. This loss can be applied to past or future tax years to lower taxable income, which may include income from self-employment.
Therefore, if a taxpayer incurs a net operating loss, they can use it to offset income in other years, potentially reducing their overall tax liability, including the tax on self-employment income.
The statement is false.