Question

Kiyara (single) is a 50 percent shareholder of Jazz Corporation (an S Corporation). Kiyara does not do any work for Jazz Corp. Jazz Corp. reported $306,000 of business income for the year (2020). Before considering her business income allocation from Jazz Corp. and the self-employment tax deduction (if any), Kiyara’s adjusted gross income was $256,000 (all employee salary). Answer the following questions for Kiyara. (Leave no answer blank. Enter zero if applicable.)

Problem 4-44 Part a (Algo)

a. Assuming the income allocated to Kiyara is qualified business income, what is Kiyara’s deduction for qualified business income?

b. What is Kiyara’s net investment income tax liability (assume no investment expenses)?

c. What is Kiyara’s self-employment tax liability?

d. What is Kiyara’s additional Medicare tax liability (include all earned income)?

Answer 1

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Answer- b&c

Business Income of Jazz Corporation (S Corporation)

$306,000

Share of Kyara @ 50% $153,000

The business income from Jazz corporation will be considered as passive income as she does not do any work for Jazz corporation. Being passive income, the

business income from Jazz Corporation is subject to Being share holder of S corporation and not having any self employment income from own or from partnership,

Net Investment Income Tax liability. Net Investment income tax liability = 153,000*3.8% = = $5,814.

Kyara is not liable for self employment tax liability. Her

social security and medicare expenses are from her salary and from her employer.

Answer d)

Taxpayers may be required to pay an Additional Medicare Tax if their income is over a certain limit. The Additional Medicare Tax rate is 0.9 percent. The tax applies to the amount of wages, self-employment income and railroad retirement (RRTA) compensation that is more than a threshold amount i.e $200,000 for

single fillers. So additional medicare tax = 0.9% of($256,000- $200,000) = $504.

Answer- a)

1) Kiyara's share of income from S corporation = $306,000 * 50% = $153000

Max Qualified business deduction= $306,000 * 20%= $61,200.