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 incurs 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 gross income from the outside consulting service, which is $13,000. The deduction for the related expenses ($3,000) will reduce her taxable self-employment income to $10,000. Therefore, her self-employment tax would be calculated on $10,000, which is $1,530 (15.3% of $10,000).

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