A self-employed taxpayer had net earnings from self-employment of $100,000. The self-employment tax liability is $14,130. What is the taxpayer's adjusted gross income (AGI) adjustment for this tax?

Answer options:

$14,130

$7,065

$10,000

How to approach this question

Deductible part of SE Tax = 50% of the tax.

Full Answer

C.$7,065✓ Correct

Self-employed individuals are allowed an above-the-line deduction (adjustment to AGI) for one-half (50%) of the self-employment tax paid. This equalizes the treatment with employees, where the employer pays half of FICA.

Common mistakes

Deducting the full amount or treating it as an itemized deduction.

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