Problem 9 14 (Algorithmic) Self Employment Tax (LO 9 6) Stew Beauf is a self employed surfboard maker in 2016 His Schedule C net income is $117,000 for the year He also has a part time job and earns $7,020 in wages subject to FICA taxes Calculate Stew's self employment tax for 2016 using 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 Information about Schedule SE and its separate instructions is at www irs gov schedulese Attach to Form 1040 or Form 1040NR OMB No 1545 0074 2016 Attachment Sequence No 17 Name of person with self employment income (as shown on Form 1040 or Form 1040NR) Stew Beauf Social security number of person with self employment income Before you begin To determine if you must file Schedule SE, see the instructions May I Use Short Schedule SE or Must I Use Long Schedule SE Note Use this flowchart only if you must file Schedule SE If unsure, see Who Must File Schedule SE in the instructions Did you receive wages or tips in 2016 No 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 Yes Was the total of your wages and tips subject to social security or railroad retirement (tier 1) tax plus your net earnings from self employment more than $118,500 Yes No No Are you using one of the optional methods to figure your net earnings (see instructions) Yes Did you receive tips subject to social security or Medicare tax that you didn't report to your employer Yes No No Did you receive church employee income (see instructions) reported on Form W 2 of $108 28 or more Yes No Did you report any wages on Form 8919, Uncollected Social Security and Medicare Tax on Wages Yes No You may use Short Schedule SE below You must use Long Schedule SE on page 2 Section AShort Schedule SE Caution Read above to see if you can use Short Schedule SE 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 Z 1b ( ) 2 Net profit or (loss) from Schedule C, line 31 Schedule C EZ, line 3 Schedule K 1 (Form 1065), box 14, code A (other than farming) and Schedule K 1 (Form 1065 B), box 9, code J1 Ministers and members of religious orders, see instructions for types of income to report on this line See instructions for other income to report 2 3 Combine lines 1a, 1b, and 2 3 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 4 Note If line 4 is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions 5 Self employment tax If the amount on line 4 is $118,500 or less, multiply line 4 by 15 3 (0 153) Enter the result here and on Form 1040, line 57, or Form 1040NR, line 55 More than $118,500, multiply line 4 by 2 9 (0 029) Then, add $14,694 to the result Enter the total here and on Form 1040, line 57, or Form 1040NR, 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 Form 1040, line 27, or Form 1040NR, line 27 6 For Paperwork Reduction Act Notice, see your tax return instructions Cat No 11358Z Schedule SE (Form 1040) 2016 Schedule SE (Form 1040) 2016 Attachment Sequence No 17 Page 2 Name of person with self employment income (as shown on Form 1040 or Form 1040NR) Stew Beauf Social security number of person with self employment income Section BLong 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 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 1a 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 1a and 1b if you use the farm optional method (see instructions) 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 Z 1b ( ) 2 Net profit or (loss) from Schedule C, line 31 Schedule C EZ, line 3 Schedule K 1 (Form 1065), box 14, code A (other than farming) and Schedule K 1 (Form 1065 B), box 9, code J1 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 If line 3 is more than zero, multiply line 3 by 92 35 (0 9235) Otherwise, enter amount from line 3 4a 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 do not owe self employment tax Exception If less than $400 and you had church employee income , enter 0 and continue 4c 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 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 2016 7 118,500 00 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 $118,500 or more, skip lines 8b through 10, and go to line 11 8a 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 9 Subtract line 8d from line 7 If zero or less, enter 0 here and on line 10 and go to line 11 9 10 Multiply the smaller of line 6 or line 9 by 12 4 (0 124) 10 11 Multiply line 6 by 2 9 (0 029) 11 12 Self employment tax Add lines 10 and 11 Enter here and on Form 1040, line 57 , or Form 1040NR, line 55 12 13 Deduction for one half of self employment tax Multiply line 12 by 50 (0 50) Enter the result here and on Form 1040, line 27 , or Form 1040NR, 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 income1 was not more than $7,200, or (b) your net farm profits2 were less than $5,198 14 Maximum income for optional methods 14 5,040 00 15 Enter the smaller of two thirds (2 3) of gross farm income1 (not less than zero) or $5,040 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 $5,198 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 Sch C EZ, line 3 Sch K 1 (Form 1065), box 14, code A and Sch K 1 (Form 1065 B), box 9, code J1 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 Sch C EZ, line 1 Sch K 1 (Form 1065), box 14, code C and Sch K 1 (Form 1065 B), box 9, code J2

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Problem 9-14 (Algorithmic) Self-Employment Tax (LO 9.6) Stew Beauf is a self-employed surfboard-maker in 2016. His Schedule C net income is $117,000 for the year.

Problem 9-14 (Algorithmic) Self-Employment Tax (LO 9.6)

Stew Beauf is a self-employed surfboard-maker in 2016. His Schedule C net income is $117,000 for the year. He also has a part-time job and earns $7,020 in wages subject to FICA taxes. Calculate Stew's self-employment tax for 2016 using 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 ? Information about Schedule SE and its separate instructions is at www.irs.gov/schedulese. ? Attach to Form 1040 or Form 1040NR.

OMB No. 1545-0074

2016

Attachment Sequence No. 17

Name of person with self-employment income (as shown on Form 1040 or Form 1040NR) Stew Beauf	Social security number of person with self-employment income ?
*Before you begin:* To determine if you must file Schedule SE, see the instructions.
May I Use Short Schedule SE or Must I Use Long Schedule SE?
Note. Use this flowchart only if you must file Schedule SE. If unsure, see Who Must File Schedule SE in the instructions.

			Did you receive wages or tips in 2016?
			Did you receive wages or tips in 2016?
		No						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?				Yes ?		Was the total of your wages and tips subject to social security or railroad retirement (tier 1) tax plus your net earnings from self-employment more than $118,500?			Yes ?

		No						No
	?	No					?	No
Are you using one of the optional methods to figure your net earnings (see instructions)?				Yes ?		Did you receive tips subject to social security or Medicare tax that you didn't report to your employer?			Yes ?

		No						No
	?	No					?	No
Did you receive church employee income (see instructions) reported on Form W-2 of $108.28 or more?				Yes ?	? No	Did you report any wages on Form 8919, Uncollected Social Security and Medicare Tax on Wages?			Yes ?

		No
	?	No							?
You may use Short Schedule SE below					?	You must use Long Schedule SE on page 2
You may use Short Schedule SE below						You must use Long Schedule SE on page 2

Section AShort Schedule SE. Caution. Read above to see if you can use Short Schedule SE.
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 Z			1b	(	)
2	Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065), box 14, code A (other than farming); and Schedule K-1 (Form 1065-B), box 9, code J1. Ministers and members of religious orders, see instructions for types of income to report on this line. See instructions for other income to report.			2
3	Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			3
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?			4
	Note. If line 4 is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions.
5	Self-employment tax. If the amount on line 4 is:
	$118,500 or less, multiply line 4 by 15.3% (0.153). Enter the result here and on Form 1040, line 57, or Form 1040NR, line 55
	More than $118,500, multiply line 4 by 2.9% (0.029). Then, add $14,694 to the result.
	Enter the total here and on Form 1040, line 57, or Form 1040NR, 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 Form 1040, line 27, or Form 1040NR, line 27 . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
For Paperwork Reduction Act Notice, see your tax return instructions.		Cat. No. 11358Z	Schedule SE (Form 1040) 2016

Schedule SE (Form 1040) 2016	Attachment Sequence No. 17	Page 2
Name of person with self-employment income (as shown on Form 1040 or Form 1040NR) Stew Beauf	Social security number of person with self-employment income ?
Section BLong 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.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . ?				?
1a	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 1a and 1b if you use the farm optional method (see instructions). . .
			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 Z.		1b	(	)
2	Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065), box 14, code A (other than farming); and Schedule K-1 (Form 1065-B), box 9, code J1. 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	If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3. .		4a
	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 do not owe self-employment tax.
	Exception. If less than $400 and you had church employee income, enter -0- and continue ?		4c
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
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 2016 . . . . . . . . . . . . . . . . . . . .
			7	118,500	00
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 $118,500 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . .

		8a
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
9	Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . ?		9
10	Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		10
11	Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		11
12	Self-employment tax. Add lines 10 and 11. Enter here and on Form 1040, line 57, or Form 1040NR, line 55 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		12
13	Deduction for one-half of self-employment tax.
	Multiply line 12 by 50% (0.50). Enter the result here and on Form 1040, line 27, or Form 1040NR, 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 income1 was not more than $7,200, or (b) your net farm profits2 were less than $5,198 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14	Maximum income for optional methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14	5,040	00
15	Enter the smaller of: two-thirds (2/3) of gross farm income1 (not less than zero) or $5,040. 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 $5,198 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; Sch. C-EZ, line 3; Sch. K-1 (Form 1065), box 14, code A; and Sch. K-1 (Form 1065-B), box 9, code J1.
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; Sch. C-EZ, line 1; Sch. K-1 (Form 1065), box 14, code C; and Sch. K-1 (Form 1065-B), box 9, code J2.