Tax Preparation Self-Employment and Business Taxes

Question 1

Self-employment tax is composed of which two components?

Accepted Answer

Social Security tax and Medicare tax

Answer

Self-employment tax consists of 12.4% for Social Security and 2.9% for Medicare, totaling 15.3%, covering both the employee and employer shares.

Question 2

A self-employed taxpayer may deduct what portion of their self-employment tax from gross income?

Accepted Answer

50%

Answer

Self-employed taxpayers can deduct 50% of self-employment tax as an adjustment to income, mimicking the employer's deductible share.

Question 3

A home office deduction for self-employed individuals requires the office space to be used:

Accepted Answer

Exclusively and regularly for business

Answer

The home office deduction requires exclusive and regular use as the principal place of business, not merely primary or occasional use.

Question 4

Schedule C net profit of $40,000 is subject to self-employment tax on what amount?

Accepted Answer

$36,940

Answer

Self-employment tax is calculated on 92.35% of net earnings: $40,000 × 0.9235 = $36,940.

Question 5

A sole proprietor can deduct contributions to a SEP-IRA up to what percentage of net self-employment earnings?

Accepted Answer

25%

Answer

SEP-IRA contributions are limited to 25% of net self-employment compensation (after SE tax deduction), up to an annual dollar cap.

Tax Preparation Practice Test