Couples who are self-employed must each figure their SECA tax separately and are required to complete a separate Schedule SE. Their total combined self-employment tax then goes on Schedule 4, line 57, of the 1040.
Losses incurred in one spouse’s business cannot be used to offset business income that is shown on the other spouse’s Schedule C for purposes of figuring each person’s self-employment tax. The spouse with a profit pays self-employment tax on the full profit, while the spouse with a loss pays zero.
We once reviewed a couple’s tax return, where the husband put his other income on his wife’s Schedule C to overcome her losses and also added his car to her business to add to the deductions. He was a full time employee of another company. We recommended that they file an amended return to correct the obvious errors. I am not sure if they ever did or not…