In 2012, Amanda earned $70,000 self-employment income. She was allowed a $4,945 above-the line deduction for her SE tax. Compute Amanda's maximum contribution to her profit-sharing Keogh plan.

Question

Quizplus · Accepted Answer

The maximum contribution to a profit-sharing Keogh plan is generally 25% of net earnings from self-employment, up to a maximum contribution limit of $56,000 in 2019. However, since Amanda is allowed an above-the-line deduction for her SE tax, her net earnings from self-employment for the purpose of calculating her maximum contribution to the Keogh plan is reduced to $70,000 - $4,945 = $65,055. Therefore, her maximum contribution to the Keogh plan is 25% of $65,055, or $16,264. However, this must be reduced by the deductible portion of her SE tax, which is 50% of the SE tax ($4,945 / 2 = $2,472.50). Therefore, her actual maximum contribution to the Keogh plan is $16,264 - $2,472.50 = $13,011, which is answer choice A.

In 2012, Amanda Earned $70,000 Self-Employment Income