ExpertMedium1 markMultiple Choice
CPA · Question 26 · Area 3: Individual Taxation
A self-employed consultant had net earnings from self-employment of 0,000 in Year 1. The self-employment tax rate is 15.3% (12.4% SS + 2.9% Medicare) up to the wage base, and 2.9% thereafter. Assume the Social Security wage base is 68,600. The calculated total Self-Employment Tax is approximately 1,120. What is the consultant's 'Adjustment to Income' (above-the-line deduction) for this tax?
A self-employed consultant had net earnings from self-employment of 0,000 in Year 1. The self-employment tax rate is 15.3% (12.4% SS + 2.9% Medicare) up to the wage base, and 2.9% thereafter. Assume the Social Security wage base is 68,600. The calculated total Self-Employment Tax is approximately 1,120. What is the consultant's 'Adjustment to Income' (above-the-line deduction) for this tax?
Answer options:
A.
0
B.
1,120
C.
0,560
D.
5,000
How to approach this question
Rule: You can deduct 50% of your Self-Employment Tax as an adjustment to arrive at AGI.
Full Answer
C.0,560✓ Correct
IRC §164(f) allows a deduction for one-half of the self-employment taxes imposed for the year. This is an above-the-line deduction (Adjustment to Income).
Common mistakes
Deducting the full amount or deducting it as an itemized deduction.
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