Self-Employment and Business Taxes Flashcards
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Self-employment tax is composed of which two components?
Answer: Social Security tax and Medicare tax
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.
A self-employed taxpayer may deduct what portion of their self-employment tax from gross income?
Answer: 50%
Self-employed taxpayers can deduct 50% of self-employment tax as an adjustment to income, mimicking the employer's deductible share.
A home office deduction for self-employed individuals requires the office space to be used:
Answer: Exclusively and regularly for business
The home office deduction requires exclusive and regular use as the principal place of business, not merely primary or occasional use.
Schedule C net profit of $40,000 is subject to self-employment tax on what amount?
Answer: $36,940
Self-employment tax is calculated on 92.35% of net earnings: $40,000 × 0.9235 = $36,940.
A sole proprietor can deduct contributions to a SEP-IRA up to what percentage of net self-employment earnings?
Answer: 25%
SEP-IRA contributions are limited to 25% of net self-employment compensation (after SE tax deduction), up to an annual dollar cap.
A freelancer's Schedule C shows $15,000 net profit. What is their self-employment tax (rounded)?
Answer: $2,120
SE tax = $15,000 × 0.9235 × 0.153 = approximately $2,120.
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