Question

1. Cal, who is single, reports a compensation income of $65,000 in 2019. He is an active participant in his employer's qualified retirement plan. Cal contributes $6,000 to a traditional IRA. Of the $6,000 contribution, how much can Cal deduct?

2. In 2019, Kelly recorded $90,000 of net earnings from a data imaging service business that she owns. During 2019, she also received wages of $35,000 as an employee of a small accounting firm. What is Kelly's self-employment tax liability? (Round your final answer to the nearest whole dollar.)

3. In the current year, Molly takes a trip from Seattle to Taiwan primarily for business purposes. She is away from home from 04/12 through 04/17. She spends two days vacationing and four days (including two travel days) conducting business. Her airfare is $2,000, her meals amount to $150 per day, and lodging and incidental expenses are $250 per day. How much of these expenses can she deduct in total?

Answer 1

1

IRA contribution limit for 2019 is $6,000. It phases out for taxpayers participating in employered sponsored retirement plan and with AGI greather than $64,000.

Deduction allowed after phase out = $6,000 X (upper phase out limit - AGI) / $10,000

= $6,000 X ($74,000 - $65,000) / $10,000 = $5,400.

Deduction for IRA is $5,400.

2

Self-employment income subject to social security taxes = Net income from business X 92.35%

= $90,000 X 92.35% = $83,115

Self-employment tax liability = $83,115 X 15.3% = $12,716.60

3

Meals related to business days are deductible subject to 50% limit. Loding expenses related to business days are deductible. Airfare allocated between business and non-business days.

Deduction then is = Meals per day X 4 business days X 50% + Lodging per day X business days + Airfare X Business days/ total days = $150 X 4 X 50% + $250 X 4 + $2,000 X 4/6 = $2,633.33

Thus, deduction is $2,633.33

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