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 2010,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 2010,assuming the self-employment tax rate is 15.3%?

Quizplus · Accepted Answer

To calculate the maximum amount Susan can deduct as a contribution to her retirement plan, we need to follow these steps:
1. Calculate Susan's net earnings from self-employment. This is the total income items minus any deductions and expenses related to her business. In this case, we don't have that information, so we'll assume that Susan's net earnings are equal to her total income items, which is $200,000.
2. Calculate Susan's maximum contribution limit. This is the lesser of 25% of her net earnings or $57,000 (the maximum limit for 2020). In this case, 25% of $200,000 is $50,000, which is less than $57,000. Therefore, Susan's maximum contribution limit is $50,000.
3. Calculate Susan's deductible contribution. This is the amount Susan can contribute to her retirement plan and deduct from her taxes. In this case, the self-employment tax rate is 15.3%, so we need to subtract that from the maximum contribution limit: 
$50,000 - ($50,000 x 0.153) = $42,350
4. However, there is also a catch-up contribution of $6,000 allowed for individuals 50 years or older. Since the question does not provide information about Susan's age, let us assume she is older than 50. Therefore, her maximum contribution limit is increased to $56,000.
$56,000 - ($56,000 x 0.153) = $46,468
Therefore, the maximum amount Susan can deduct as a contribution to her retirement plan in 2010 is $46,468, which is option D.

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