The tax court has affirmed that a net operating loss carry forward or carry back cannot offset self-employment income in the year in which it is utilized even though the loss may have been produced from an activity that would have resulted in self-employment tax if there had been income instead of a loss.
I have found that many people don't know what self-employment tax is - even those who pay it! Employers pay half of the social security and Medicare taxes for W-2 employees and 1/2 is withheld from wages. Self-employed individuals must pay in all the tax themselves. In 2012 this amounts to a 13.3% SE tax on business/farm profits. So self-employment tax is a simply social security and Medicare for those who do not receive a W-2 for earned income. Note: Self-employment income can be reported on a business or a farm tax form as well as passed through from a partnership. (Rental income, interest, dividends, pensions = not 'earned' from a tax perspective, not subject to SE tax.)
This tax is assessed on the individual tax return against the profits from self-employment (in other words after business expenses have offset business income). Itemized deductions and AGI adjustments do not offset self-employment income - only the expenses directly related to the business. Half of the SE tax does reduce AGI. Self-employment income is then also subject to federal and state income taxes at the same rate as your other household income. With all taxes combined, profits from an unincorporated business can be taxed at over 50% depending on your federal tax bracket and state's tax rate.