Problem 6-16 (Algorithmic)

Self-Employment Tax (LO 6.6)

Stew Beauf is a self-employed surfboard-maker in 2019. His Schedule C net income is $172,000 for the year. He also has a part-time job and earns $10,320 in wages subject to FICA taxes. Calculate Stew's self-employment tax for 2019 using Schedule SE.

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

Based on the chart below, determine whether to fill Short Schedule SE or Long Schedule SE

Short Schedule

Long Schedule

Did you receive wages or tips in 2019? No Yes Yes Yes Are you a minister, member of a religious order, or Christian Science practitioner who received IRS approval not to be taxed on earnings from these sources, but you owe self-employment tax on other earnings? Was the total of your wages and tips subject social security or railroad retirement (tier 1) tax plus your net earnings from self-employment more than $132,900? No No Yes Yes Are you using one of the optional methods to figure your net earnings (see instructions)? Did you receive tips subject to social security or Medicare tax that you didn't report to your employer? No No Yes Yes No Did you receive church employee income (see instructions) reported on Form W-2 of $108.28 or more? Did you report any wages on Form 8919, Uncollected Social Security and Medicare Tax on Wages? No You may use Short Schedule SE below You must use Long Schedule SE on page 2 la Section A-Short Schedule SE. Caution: Read above to see if you can use Short Schedule SE. la Net farm profit or loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A........... 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 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than farming). Ministers and members of religious orders, see instructions for types of income to report on this line. See instructions for other income to report 1b 2 3 Combine lines 1a, 1b, and 2 3 4 5 4 Multiply line 3 by 92.35% (0.9235). If less than $400, you don't owe self-employment tax; don't file this schedule unless you have an amount on line 1b Note: If line 4 is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. Self-employment tax. If the amount on line 4 is: $132,900 or less, multiply line 4 by 15.3% (0.153). Enter the result here and on Schedule 2 (Form 1040 or 1040-SR), line 4, or Form 1040-NR, line 55. More than $132,900, multiply line 4 by 2.9% (0.029). Then, add $16,479.60 to the result. Enter the total here and on Schedule 2 (Form 1040 or 1040-SR), line 4, or Form 1040-NR, line 55 5 6 Deduction for one-half of self-employment tax. Multiply line 5 by 50% (0.50). Enter the result here and on Schedule 1 (Form 1040 or 1040-SR), line 14, or Farm 1040-NR, line 27 6 Schedule SE (Form 1040 or 1040-SR) 2019 Attachment Sequence No. 17 Page 2 Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR) Stew Beauf Social security number of person with self-employment income Section B-Long Schedule SE Part I Self-Employment Tax Note: If your only income subject to self-employment tax is church employee income, see Instructions. Also see instructions for the definition of church employee income. 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. la Net farm profit or loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A. Note: Skip lines la and 15 if you use the farm optional method (see instructions)... la 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 | 2 Net profit or loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than farming). Ministers and members of religious orders, see instructions for types of income to report on this line. See instructions for other income to report. Note: Skip this line if you use the nonfarm optional method (see instructions) ... 2 3 Combine lines 1a, 1b, and 2 3 4a 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3. . Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b 4b C If you elect one or both of the optional methods, enter the total of lines 15 and 17 here ........ Combine lines 4a and 4b. If less than $400, stop; you don't owe self-employment tax. Exception. If less than 5400 and you had church employee income, enter -- and continue 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income........ 5a 4c b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -- 5b Add lines 4c and 5b. 6 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 2019.. 7 132,900 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 $132,900 or more, skip lines 8b through 10, and go to line 11 .............. sa 8b b Unreported tips subject to social security tax (from Form 4137, line 10) c Wages subject to social security tax (from Form 8919, line 10). .... 8c d Add lines 8a, 8b, and &c ........ 9 Subtract line 8d from line 7. If zero or less, enter -- here and on line 10 and go to line 11. 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) 11 Multiply line 6 by 2.9% (0.029)............... 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule (Form 1040 or 1040-SR), 8d 9 10 11 12 14 5,440 line 4, or Form 1040-NR, line 55 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter the result here and on Schedule 1 (Form 1040 or 1040-SR), line 14, or Form 1040-NR, line 27....... 13 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? wasn't more than $7,920, or (b) your net farm profits were less than $5,891. 14 Maximum income for optional methods ........ 15 Enter the smaller of: two-thirds (2/3) of gross farm income? (not less than zero) or $5,440. Also include this amount on line 4b above ................................................ Nonfarm Optional Method. You may use this method only if (a) your net nonfarm profits were less than $5,891 and also less than 72.189% of your gross nonfarm income, 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 17 Enter the smaller of: two-thirds (2/3) of gross nonfarm income (not less than zero) or the amount on line 16. Also include this amount on line 4b above 15 16 17 1 From Sch. F, line 9, and Sch. K-1 (Form 1065), box 14, code B. 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 A From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. -minus the amount you would have entered on line 1b had you not used the optional method. Did you receive wages or tips in 2019? No Yes Yes Yes Are you a minister, member of a religious order, or Christian Science practitioner who received IRS approval not to be taxed on earnings from these sources, but you owe self-employment tax on other earnings? Was the total of your wages and tips subject social security or railroad retirement (tier 1) tax plus your net earnings from self-employment more than $132,900? No No Yes Yes Are you using one of the optional methods to figure your net earnings (see instructions)? Did you receive tips subject to social security or Medicare tax that you didn't report to your employer? No No Yes Yes No Did you receive church employee income (see instructions) reported on Form W-2 of $108.28 or more? Did you report any wages on Form 8919, Uncollected Social Security and Medicare Tax on Wages? No You may use Short Schedule SE below You must use Long Schedule SE on page 2 la Section A-Short Schedule SE. Caution: Read above to see if you can use Short Schedule SE. la Net farm profit or loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A........... 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 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than farming). Ministers and members of religious orders, see instructions for types of income to report on this line. See instructions for other income to report 1b 2 3 Combine lines 1a, 1b, and 2 3 4 5 4 Multiply line 3 by 92.35% (0.9235). If less than $400, you don't owe self-employment tax; don't file this schedule unless you have an amount on line 1b Note: If line 4 is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. Self-employment tax. If the amount on line 4 is: $132,900 or less, multiply line 4 by 15.3% (0.153). Enter the result here and on Schedule 2 (Form 1040 or 1040-SR), line 4, or Form 1040-NR, line 55. More than $132,900, multiply line 4 by 2.9% (0.029). Then, add $16,479.60 to the result. Enter the total here and on Schedule 2 (Form 1040 or 1040-SR), line 4, or Form 1040-NR, line 55 5 6 Deduction for one-half of self-employment tax. Multiply line 5 by 50% (0.50). Enter the result here and on Schedule 1 (Form 1040 or 1040-SR), line 14, or Farm 1040-NR, line 27 6 Schedule SE (Form 1040 or 1040-SR) 2019 Attachment Sequence No. 17 Page 2 Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR) Stew Beauf Social security number of person with self-employment income Section B-Long Schedule SE Part I Self-Employment Tax Note: If your only income subject to self-employment tax is church employee income, see Instructions. Also see instructions for the definition of church employee income. 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. la Net farm profit or loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A. Note: Skip lines la and 15 if you use the farm optional method (see instructions)... la 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 | 2 Net profit or loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than farming). Ministers and members of religious orders, see instructions for types of income to report on this line. See instructions for other income to report. Note: Skip this line if you use the nonfarm optional method (see instructions) ... 2 3 Combine lines 1a, 1b, and 2 3 4a 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3. . Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b 4b C If you elect one or both of the optional methods, enter the total of lines 15 and 17 here ........ Combine lines 4a and 4b. If less than $400, stop; you don't owe self-employment tax. Exception. If less than 5400 and you had church employee income, enter -- and continue 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income........ 5a 4c b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -- 5b Add lines 4c and 5b. 6 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 2019.. 7 132,900 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 $132,900 or more, skip lines 8b through 10, and go to line 11 .............. sa 8b b Unreported tips subject to social security tax (from Form 4137, line 10) c Wages subject to social security tax (from Form 8919, line 10). .... 8c d Add lines 8a, 8b, and &c ........ 9 Subtract line 8d from line 7. If zero or less, enter -- here and on line 10 and go to line 11. 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) 11 Multiply line 6 by 2.9% (0.029)............... 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule (Form 1040 or 1040-SR), 8d 9 10 11 12 14 5,440 line 4, or Form 1040-NR, line 55 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter the result here and on Schedule 1 (Form 1040 or 1040-SR), line 14, or Form 1040-NR, line 27....... 13 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? wasn't more than $7,920, or (b) your net farm profits were less than $5,891. 14 Maximum income for optional methods ........ 15 Enter the smaller of: two-thirds (2/3) of gross farm income? (not less than zero) or $5,440. Also include this amount on line 4b above ................................................ Nonfarm Optional Method. You may use this method only if (a) your net nonfarm profits were less than $5,891 and also less than 72.189% of your gross nonfarm income, 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 17 Enter the smaller of: two-thirds (2/3) of gross nonfarm income (not less than zero) or the amount on line 16. Also include this amount on line 4b above 15 16 17 1 From Sch. F, line 9, and Sch. K-1 (Form 1065), box 14, code B. 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 A From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. -minus the amount you would have entered on line 1b had you not used the optional method