Question

Willard-Skip is self-employed and earned net income (after all proper deductions except one-half of the self employment tax) for tax purposes of $59,000 from his business. Willard’s only other income was

Qualified dividends                                                         $    950

Corporate bond interest of                                              1,200

Municipal bond interest                                                       900

a. Calculate Willard’s self-employment tax and his adjusted gross income.

b. How would your answer to “1” differ if Willard also had earned FICA wages of $76,400?

c. How would your answer to “1” differ if Willard’s net earnings from the business were $148,000, and there were no wages?

Answer 1

a)   Willard-Skip self employment tax and his adjusted gross income.

      Income from Self employment                  -           $ 59000

        Add:   Qualified dividends -        $    950

                    Corporate bond interest $ 1,200

                    Municipal bond interest $    900

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     GROSS TOTA INCOME                                   $ 62050

                                                                               --------------

         Self employment tax of Willard Skip

        Income from Self employment                  -           $ 59000

         Self employment Tax   @ 50%                             $ 29500

       Qualified dividend, Corporate Bond interest and Municipal Bond interest are income earned out of investments and not earned out of employment, hence these income are not taxable for the purpose of self employment tax

b) Gross total income and self employment tax of Willard Skip when he have additional earning of76400 from FICA wages.

       Income from Self employment                  -           $ 59000

       Add: FICA wages earned                                     $ 76400

               Self Employment earnings     $ 135400       

        Add:   Qualified dividends - $    950

                    Corporate bond interest $ 1,200

                    Municipal bond interest $    900

-------------

     GROSS TOTA INCOME                              $ 138450

                                                                          --------------

         Self employment tax of Willard Skip

        Income from Self employment                  -           $ 135400

         Self employment Tax   @ 50%                             $   67700

c) Gross total income and self employment tax of Willard Skip when he have net earning of $ 148000 and no waages.

       Income from Self employment                  -           $ 148000

               Self Employment earnings                         $ 148000       

        Add:   Qualified dividends                  - $    950

                    Corporate bond interest $ 1,200

                    Municipal bond interest $    900

-------------

     GROSS TOTA INCOME                             $ 151050

                                                                                    --------------

         Self employment tax of Willard Skip

        Income from Self employment                  -           $ 148000

         Self employment Tax   @ 50%                             $   74000