Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan).She has the following income items for the year: What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2013,assuming the self-employment tax rate is 15.3%?

Question

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan).She has the following income items for the year:  What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2013,assuming the self-employment tax rate is 15.3%?

Quizplus · Accepted Answer

The calculation for the maximum amount that Susan can deduct as a contribution to her Keogh plan is based on her net self-employment income, which is calculated by subtracting her self-employment tax and her Keogh contribution from her total income.

Her net self-employment income for 2013 is:
$120,000 - ($120,000 x 0.5 x 0.153) - $17,500 = $91,932

The maximum Keogh contribution for 2013 is:
$51,000 or 25% of her net self-employment income, whichever is less.

25% of $91,932 is $22,983, which is less than $51,000. Therefore, the maximum Keogh contribution for Susan in 2013 is $22,983.

However, Susan can only deduct a portion of this contribution on her taxes due to limits imposed by the IRS. The maximum deductible Keogh contribution for Susan in 2013 is calculated as follows:

Step 1: Calculate Susan's deductible self-employment tax
$120,000 x 0.5 x 0.153 = $9,198

Step 2: Calculate Susan's deductible Keogh contribution
$22,983 - $9,198 = $13,785

Therefore, the maximum amount Susan can deduct as a contribution to her retirement plan in 2013 is $13,785, which is answer choice D.

Susan Is a Self-Employed Accountant with a Qualified Defined Contribution