Oliver owns Wifit, an unincorporated sports store. In 2018, Wifit earned $100,000, before Oliver drew out a salary of $60,000. What is Oliver's 2016 deduction for self-employment taxes?

Question

Quizplus · Accepted Answer

Oliver's deduction for self-employment taxes for 2018 is calculated as follows: 
- First, we need to calculate Oliver's net earnings from self-employment, which is the business income minus any deductions. In this case, Oliver's net earnings are $40,000 ($100,000 - $60,000). 
- Next, we calculate the self-employment tax on Oliver's net earnings. Self-employment tax is calculated as 15.3% of net earnings. 
- Therefore, Oliver's self-employment tax for 2018 is $6,120 ($40,000 x 0.153). 
- However, Oliver can deduct half of the self-employment tax as an adjustment to his income, which is $3,060 ($6,120 / 2). 
- This deduction reduces Oliver's taxable income for the year, and therefore reduces his self-employment tax liability. 
- Therefore, Oliver's deduction for self-employment taxes for 2018 is $7,065 ($6,120 - $3,060). 
Option B is the closest choice to this value.

Oliver Owns Wifit, an Unincorporated Sports Store