Xavier is a self-employed plumber. His earnings from self-employment, before the Keogh deduction but after deducting half of the self-employment tax, are $80,000. What is his deductible Keogh contribution for 2015?

Question

Quizplus · Accepted Answer

For a self-employed individual, the maximum deductible contribution to a Keogh plan is 25% of net earnings from self-employment. After deducting half of the self-employment tax, Xavier's earnings are $80,000. Therefore, 25% of $80,000 is $20,000. However, the contribution is limited to 20% of net earnings before the Keogh deduction, which results in $16,000.

Xavier Is a Self-Employed Plumber