Problem 6 16 (Algorithmic) Self Employment Tax (LO 6 6) James Felon is a self employed surfboard maker in 2020 His Schedule C net income is $155,200 for the year He also has a part time job and earns $9,312 in wages subject to FICA taxes Calculate James' self employment tax for 2020 using page 1 of Schedule SE Note If required, round amounts to the nearest dollar Enter all amounts as positive numbers SCHEDULE SE (Form 1040) Department of the Treasury Internal Revenue Service (99) Self Employment Tax Go to www irs gov ScheduleSE for instructions and the latest information Attach to Form 1040, 1040 SR, or 1040 NR OMB No 1545 0074 2020 Attachment Sequence No 17 Name of person with self employment income (as shown on Form 1040, 1040 SR, or 1040 NR) James Felon Social security number of person with self employment income Part I Self Employment Tax Note If your only income subject to self employment tax is church employee income, see instructions for how to report your income and the definition of church employee income A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self employment, check here and continue with Part I Skip lines 1a and 1b if you use the farm optional method in Part II See instructions 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K 1 (Form 1065), box 14, code A 1a b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K 1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II See instructions 2 Net profit or (loss) from Schedule C, line 31 and Schedule K 1 (Form 1065), box 14, code A (other than farming) See instructions for other income to report or if you are a minister or member of a religious order 2 fill in the blank 1 3 Combine lines 1a, 1b, and 2 3 fill in the blank 2 4a If line 3 is more than zero, multiply line 3 by 92 35 (0 9235) Otherwise, enter amount from line 3 4a fill in the blank 3 Note If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here 4b c Combine lines 4a and 4b If less than $400, stop you don't owe self employment tax Exception If less than $400 and you had church employee income , enter 0 and continue 4c fill in the blank 4 5a Enter your church employee income from Form W 2 See instructions for definition of church employee income 5a b Multiply line 5a by 92 35 (0 9235) If less than $100, enter 0 5b 6 Add lines 4c and 5b 6 fill in the blank 5 7 Maximum amount of combined wages and self employment earnings subject to social security tax or the 6 2 portion of the 7 65 railroad retirement (tier 1) tax for 2020 7 137,700 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W 2) and railroad retirement (tier 1) compensation If $137,700 or more, skip lines 8b through 10, and go to line 11 8a fill in the blank 6 b Unreported tips subject to social security tax from Form 4137, line 10 8b c Wages subject to social security tax from Form 8919, line 10 8c d Add lines 8a, 8b, and 8c 8d fill in the blank 7 9 Subtract line 8d from line 7 If zero or less, enter 0 here and on line 10 and go to line 11 9 fill in the blank 8 10 Multiply the smaller of line 6 or line 9 by 12 4 (0 124) 10 fill in the blank 9 11 Multiply line 6 by 2 9 (0 029) 11 fill in the blank 10 12 Self employment tax Add lines 10 and 11 Enter here and on Schedule 2 (Form 1040), line 4, 12 fill in the blank 11 13 Deduction for one half of self employment tax Multiply line 12 by 50 (0 50) Enter here and on Schedule 1 (Form 1040), line 14 13 fill in the blank 12 Part II Optional Methods To Figure Net Earnings (see instructions) Farm Optional Method You may use this method only if (a) your gross farm income 1 wasn't more than $8,460, or (b) your net farm profits 2 were less than $6,107 14 Maximum income for optional methods 14 5,640 15 Enter the smaller of two thirds (2 3) of gross farm income 1 (not less than zero) or $5,640 Also, include this amount on line 4b above 15 Nonfarm Optional Method You may use this method only if (a) your net nonfarm profits 3 were less than $6,107 and also less than 72 189 of your gross nonfarm income, 4 and (b) you had net earnings from self employment of at least $400 in 2 of the prior 3 years Caution You may use this method no more than five times 16 Subtract line 15 from line 14 16 17 Enter the smaller of two thirds (2 3) of gross nonfarm income 4 (not less than zero) or the amount on line 16 Also, include this amount on line 4b above 17 1 From Sch F, line 9 and Sch K 1 (Form 1065), box 14, code B 3 From Sch C, line 31 and Sch K 1 (Form 1065), box 14, code A 2 From Sch F, line 34 and Sch K 1 (Form 1065), box 14, code Aminus the amount you would have entered on line 1b had you not used the optional method 4 From Sch C, line 7 and Sch K 1 (Form 1065), box 14, code C For Paperwork Reduction Act Notice, see your tax return instructions Cat No 11358Z Schedule SE (Form 1040) 2020

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Problem 6-16 (Algorithmic) Self-Employment Tax (LO 6.6) James Felon is a self-employed surfboard-maker in 2020. His Schedule C net income is $155,200 for the year.

Problem 6-16 (Algorithmic) Self-Employment Tax (LO 6.6)

James Felon is a self-employed surfboard-maker in 2020. His Schedule C net income is $155,200 for the year. He also has a part-time job and earns $9,312 in wages subject to FICA taxes.

Calculate James' self-employment tax for 2020 using page 1 of Schedule SE.

Note: If required, round amounts to the nearest dollar. Enter all amounts as positive numbers.

SCHEDULE SE (Form 1040) Department of the Treasury Internal Revenue Service (99)

Self-Employment Tax Go to www.irs.gov/ScheduleSE for instructions and the latest information. Attach to Form 1040, 1040-SR, or 1040-NR.

OMB No. 1545-0074

2020

Attachment Sequence No. 17

Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR) James Felon

Social security number of person with self-employment income

Part I

Self-Employment Tax

Note. If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income.
A	If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . . . . . . . . . . . . . . . . . . .
Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions.
1a	Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
				1a
b	If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1b	(	)
Skip line 2 if you use the nonfarm optional method in Part II. See instructions.
2	Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than farming). See instructions for other income to report or if you are a minister or member of a religious order . . . . . . . . . . . . . . . .			2	fill in the blank 1
3	Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			3	fill in the blank 2
4a	If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3. .			4a	fill in the blank 3
	Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions.
b	If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . . . .			4b
c	Combine lines 4a and 4b. If less than $400, stop; you don't owe self-employment tax.
	Exception: If less than $400 and you had church employee income, enter -0- and continue			4c	fill in the blank 4
5a	Enter your church employee income from Form W-2. See instructions for definition of church employee income. . . . . . . . . . . . . . . . . . . . . . .
		5a
b	Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . .			5b
6	Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			6	fill in the blank 5
7	Maximum amount of combined wages and self-employment earnings subject to social security tax or the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2020 . . . . . . . . . . . . . . . . . . . .
				7	137,700
8a	Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $137,700 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . .

		8a	fill in the blank 6
b	Unreported tips subject to social security tax from Form 4137, line 10	8b
c	Wages subject to social security tax from Form 8919, line 10 . . . . .	8c
d	Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			8d	fill in the blank 7
9	Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 .			9	fill in the blank 8
10	Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			10	fill in the blank 9
11	Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			11	fill in the blank 10
12	Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4, . . .			12	fill in the blank 11
13	Deduction for one-half of self-employment tax.
	Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 14 . . . . . . . . . . . . . . . . . .
		13	fill in the blank 12

Part II

Optional Methods To Figure Net Earnings (see instructions)

Farm Optional Method. You may use this method only if (a) your gross farm income¹ wasn't more than $8,460, or (b) your net farm profits² were less than $6,107 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14	Maximum income for optional methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14	5,640
15	Enter the smaller of: two-thirds (2/3) of gross farm income¹ (not less than zero) or $5,640. Also, include this amount on line 4b above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
		15
Nonfarm Optional Method. You may use this method only if (a) your net nonfarm profits³ were less than $6,107 and also less than 72.189% of your gross nonfarm income,⁴ and (b) you had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Caution: You may use this method no more than five times. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16	Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
17	Enter the smaller of: two-thirds (2/3) of gross nonfarm income⁴ (not less than zero) or the amount on line 16. Also, include this amount on line 4b above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
		17

¹	From Sch. F, line 9; and Sch. K-1 (Form 1065), box 14, code B.	³	From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A.
²	From Sch. F, line 34; and Sch. K-1 (Form 1065), box 14, code Aminus the amount you would have entered on line 1b had you not used the optional method.	⁴	From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C.