From the records of Tom,a cash basis sole proprietor,the following information was available: $\begin{array}{ll}\text { Gross receipts }&\$30,000\
\text { Dividend income (on personal investments) }&\$200\
\text { Cost of sales }&\$15,000\
\text { Other operating expenses }&\$ 3,000\
\text {State business taxes paid }&\$300\
\end{array}$
What amount should Tom report as net earnings from self-employment?

Question

From the records of Tom,a cash basis sole proprietor,the following information was available: $\begin{array}{ll}\text { Gross receipts }&\$30,000\
\text { Dividend income (on personal investments) }&\$200\
\text { Cost of sales }&\$15,000\
\text { Other operating expenses }&\$ 3,000\
\text {State business taxes paid }&\$300\
\end{array}$
 What amount should Tom report as net earnings from self-employment?

Quizplus · Accepted Answer

Net earnings from self-employment are calculated as gross receipts minus cost of sales and other operating expenses. Dividend income and state business taxes are not included. Thus, $30,000 - $15,000 - $3,000 = $12,000. However, for self-employment tax purposes, 92.35% of this amount is considered, which is $12,000 * 0.9235 = $11,082. Since none of the options match this exactly, the closest option is $11,700.

From the Records of Tom,a Cash Basis Sole Proprietor,the Following