Question

JC recently graduated from veterinary school and opened her own professional practice. This year, her net profit was $32,000.

Compute JC’s after-tax income from her practice assuming her self-employment tax is $4,522, and her marginal income tax rate is 22 percent.

What percentage of the federal tax burden on JC’s business income is represented by the self-employment tax?

Answer 1

Particulars	Amount	Cash flow
Net profit	32,000	32,000
Less: deductible SE taxes	(2,261)
Less: standard deduction	(12,200)
Taxable income	17,539
Federal income tax	(1,911)	(1,911)
Self employement tax	(4,522)	(4,522)
After tax income		25,567

Taxable income		$          17,539
Income tax liability		$       1,910.68
[ 970 + ( 17539 - 9700 ) × 0.12 ]

Self-employment tax burden = 4,522/ (4522 + 1911) = 70.30%