Answer:
A. $120,000 is subject to self-employment tax
B. Wilma’s 2018 self-employment tax is $16,955
C. Wilma's allowable Section 199A deduction is $21,500
D. The taxable income from her bookstore activity is $107,982
Explanation:
A. The income from normal business activities are eligible for self employment tax, therefore $120,000 is subject to self-employment tax.
B. To calculate Wilma’s 2018 self-employment tax we have to make the following calculation:
Wilma’s 2018 self-employment tax=($120,000×92.35%)×15.30%
Wilma’s 2018 self-employment tax=$16,955
C. Assuming $43,000 of W-2 wages and $90,000 unadjusted basis of tangible depreciable property, the computation of Wilma's allowable Section 199A deduction would be as follows:
In this case would be 50% of W2 wage, therefore:
Wilma's allowable Section 199A deduction=$43,000×50%=$21,500
D. The taxable income from her bookstore activity=Gross Income-50%self-employment tax-Wilma's allowable Section 199A deduction
Gross Income=$120,000+$17,000+$960=$137,960
50%self-employment tax=$16,955×50%=$8,478
Wilma's allowable Section 199A deduction=$21,500
Therefore, The taxable income from her bookstore activity= $137,960-$8,478-$21,500=$107,982
