Question

In: Accounting

1. Who can contribute to a traditional IRA, and how much? Nick, age 53, is single...

1. Who can contribute to a traditional IRA, and how much?

Nick, age 53, is single and has AGI of $67,000. He contributes $5,000 to his IRA in 2018.
How much can Nick deduct if he is not covered by an employer-sponsored qualified retirement plan?
How much can Nick deduct if he is covered by an employer-sponsored qualified retirement plan?

2. This problem is about self-employment taxes. Don't forget the ceiling on Social Security taxes.

George has $91,700 in salary from his full-time position and $43,000 in net income in 2018 from his sole proprietorship. What is his self-employment tax? What portion of this can he deduct?

Solutions

Expert Solution

Answer part 1

Since Nick's age is over 50 years, he is entitled to additional IRA deduction of $1000 over and above the standard limit of $5500 thereby entitling him to contribute a total of $6500 to his IRA in 2018 if he is not covered by an employer sponsored qualified retirement plan. Since he is already contributing $5000 to his IRA, he can make additional contribution of upto $1500 more over and above contribution of $5000

If Nick is covered by an employer sponsored qualified retirement plan then, contribution to IRA shall be partially deductible since his AGI is $67000, which ranges between $63000 and $73000. IRS prescribes a phased out deduction to IRA for those who are covered by employer sponsored retirement plan and whose AGI ranges between $63000 to $73000 for 2018.

Answer 2

Since George earns $ 91700 as salary income and $43000 from sole proprietorship, his total self employment tax would be $5146 and he can deduct $2573 out of self employment tax in Form 1040 which is show in the table given below:

Particulars $
Salary income 91700
Income from sole proprietorship 43000
Total income 134700
Social security tax 5332
Medicare tax 1247

ekkarill92 answered 1 year ago
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