ExpertHard1 markMultiple Choice
CPA · Question 23 · Area IV: Individual Taxation
A self-employed taxpayer had net earnings from self-employment of $100,000. The self-employment tax liability was approximately $14,130. Which of the following describes the income tax deduction available to the taxpayer regarding this tax?
A self-employed taxpayer had net earnings from self-employment of $100,000. The self-employment tax liability was approximately $14,130. Which of the following describes the income tax deduction available to the taxpayer regarding this tax?
Answer options:
A.
The full $14,130 is deductible as an itemized deduction.
B.
50% of the self-employment tax ($7,065) is deductible as an adjustment to arrive at Adjusted Gross Income (AGI).
C.
50% of the self-employment tax is a tax credit.
D.
The self-employment tax is not deductible.
How to approach this question
Employers deduct the employer share of FICA. Self-employed people pay both shares but get to deduct the 'employer' half (50%) Above-the-Line.
Full Answer
B.50% of the self-employment tax ($7,065) is deductible as an adjustment to arrive at Adjusted Gross Income (AGI).✓ Correct
B
IRC §164(f) allows a deduction for one-half of the self-employment taxes imposed. This deduction is taken 'above-the-line' to arrive at AGI (IRC §62(a)(1)).
Common mistakes
Thinking it's an itemized deduction or a full deduction.
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