What is the purpose of Schedule SE?

Schedule SE is specifically designed for individuals to calculate their self-employment tax, which includes both Social Security and Medicare taxes. This is particularly relevant for sole proprietors, as they are responsible for paying these taxes based on their net earnings from self-employment. The self-employment tax is an important consideration, as it differs from employees who have these taxes withheld from their paychecks by their employers.

The calculation on Schedule SE helps determine how much self-employment tax the taxpayer owes, based on their income from self-employment activities. This tax helps fund Social Security and Medicare programs, benefiting those who will receive these benefits in retirement or under certain circumstances.

In contrast, the other options focus on different tax-related tasks. For example, itemized deductions are reported on a different form, and farming income has its own reporting requirements that differ from those of self-employment income. Business expenses, while crucial for calculating net income, do not pertain directly to the computation of social security and Medicare taxes. Therefore, Schedule SE’s primary purpose aligns clearly with the calculations needed for self-employment taxes, making the correct answer distinctly focused on the role it plays in tax preparation for sole proprietors.