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With the primary form 1040, for salaries/wages, things are explained fairly straight forward: you deduct a Personal Exemption, and you deduct EITHER a Standard Deduction OR an Itemized Deduction of expenses.

But with self-employment tax, I can't find information about how business expenses interact with the 50% self-employment deduction.

Question: can you subtract business expenses on Schedule C-EZ (less than $5,000) to reduce Net Profit AND then take the 50% self-employment deduction on Schedule SE as well? Or are they mutually exclusive?

In simpler terms, is this list of operations correct for self-employment?

  1. Calculate Net Profit by subtracting expenses.
  2. Multiply the Net Profit by ~92% to get the Self-Employment Taxable Income.
  3. Multiply the Self-Employment Tax by 50% to get the Deductible Part of SE Tax?
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Business expenses reduce business income. The SE tax is paid on business income. The credit for 1/2 the SE tax is based on the amount of SE tax paid.

So:

  1. Take business net revenue
  2. Subtract business expenses to get business income
  3. Compute SE tax on business income
  4. Deduct 1/2 of SE tax
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