Question 1

A self-employed consultant had net earnings from self-employment of 0,000 in Year 1. The self-employment tax rate is 15.3% (12.4% SS + 2.9% Medicare) up to the wage base, and 2.9% thereafter. Assume the Social Security wage base is 68,600. The calculated total Self-Employment Tax is approximately 1,120. What is the consultant's 'Adjustment to Income' (above-the-line deduction) for this tax?

Accepted Answer

Rule: You can deduct 50% of your Self-Employment Tax as an adjustment to arrive at AGI.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

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

How to approach this question

Full Answer

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