Question

In 2018, Wilma Way’s sole proprietorship, WW Bookstore, generated $120,000 net profit. In addition, Wilma recognized a $17,000 gain on the sale of business furniture and shelving, all of which was recaptured as ordinary income. The business checking account earned $960 interest income.

Compute Wilma’s 2018 self-employment tax.

Compute Wilma's allowable Section 199A deduction, assuming $43,000 of W-2 wages and $90,000 unadjusted basis of tangible depreciable property.

Compute Wilma’s 2018 taxable income from her bookstore activity.

Answer 1

Computation of Self Employment Tax
Net Income Generated from bookstore Business	$ 1,20,000.00
Self Employment Tax = 120000*92.35% * 15.3%	$16,955.60

In case of Sole proprietor, Whole of the employer and employee self Employment tax is paid by Proprietor

Self Employment tax is divided into two parts, One is Social Security (old-age, survivors, and disability insurance etc.) Tax which is equal to 12.4% of the income (Subject to maximum ceiling limit on income of $128,400 for year 2018) and other is medicare withholding tax @2.9%.

Such Self Employment taxes are reduced from total taxable income reported in Form 1040.

Computation of Taxable Income
Income Generated as per Book	$        1,20,000
Gain on sale of Furniture	$            17,000
Interest Income	$ 960
Total Taxable income	$        1,37,960
Net taxable Income=$137,960-($16,955.46/2)
=$129,482 Approx