During the current year,Eleanor earns $120,000 in wages as an employee of an accounting firm.She also earns $13,000 in gross income from an outside consulting service she operates.Deductible expenses paid in connection with the consulting service amount to $3,000.Eleanor also has a recognized long-term capital gain of $1,000 from the sale of a stock investment.She must pay a self-employment tax on:

Question

Quizplus · Accepted Answer

Eleanor must pay self-employment tax on her outside consulting service income since she is considered self-employed in that business. Her gross income from the consulting service is $13,000 and her deductible expenses are $3,000, leaving her with a net income of $10,000. She must pay self-employment tax on this amount, which for 2021 is 15.3%, resulting in a self-employment tax of $1,530. Therefore, the correct answer is B, $10,000.

During the Current Year,Eleanor Earns $120,000 in Wages as an Employee