[Mika]

Hi,

TBS from one of the Ninja MCQ

Mrs. Vick, a 40-year-old cash basis taxpayer, earned $45,000 as a teacher and $5,000 as a part-time, self-employed real estate agent in 2014…………………..

Requirement: Calculate the self-employment tax of Mrs. Vick.

Answer: Line 27: Mrs. Vick is a part-time real estate agent and is considered to be self-employed. She may owe self-employment tax. In order to calculate the amount of self-employment tax owed, she would fill in Schedule SE (Form 1040). One-half of the self-employment tax is a deduction before AGI.

1. Net profit from Schedule C $5,000.00

2. Multiply above amount by 92.35% (0.9235) 4,617.50

3. Multiply the lesser of $117,000 or line 2 amount by 15.3% (0.153) 706.48

4. Multiply line 3 amount by 50% (0.50) 353.24 <–

I thought I only need to do a simple calculation like $5,000 x 7.65% but it is not the case.

Instead, I need to remember the following formula:

{ [Self-employment income x (1 – 7.65%)] x 15.3% } ÷ 2

WHY??!! Please help…

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