During 2015, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

Question

Quizplus · Accepted Answer

To calculate the self-employment tax, you first need to determine the net profit by subtracting any allowable business expenses from the earnings. Let's assume Elena had $5,500 of allowable expenses, so her net profit on Schedule C is $24,500 - $5,500 = $19,000.

Next, you need to calculate the self-employment tax, which is 15.3% of the net profit. This tax consists of two parts: 12.4% for Social Security tax and 2.9% for Medicare tax. Self-employed individuals pay both parts of this tax on their net income.

So, Elena's self-employment tax is 15.3% * $19,000 = $2,907. However, there is a maximum amount of earnings subject to Social Security tax, which for 2015 is $118,500. Since Elena's earnings are below this limit, the full $19,000 is subject to both parts of the self-employment tax.

Therefore, Elena will owe $2,907 in self-employment tax on her Schedule C net profit. The closest answer choice is D: $3,461, which is not correct.

During 2015, Elena Generated $24,500 of Earnings on Schedule C