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1. Filing Status:
Married filing jointly
2. Self-Employment Income
Income from consulting practice 12,000
Expenses:
Travel 850 Postage 600 Office supplies 500 Client lunches (780 x 50%) 390 Depreciation – old computer using half-year convention: (1,800 x 11.52% x ½ ) 104 Depreciation – new laptop using mid-quarter convention: (1,200 x 5%) 60 2,504
Self-employment income 9,496
3. Self-Employment Tax and Deductible Portion of Self-Employment Tax
Net earnings from self-employment = 9,496 x .9235 = 8,770
Earning subject to social security portion: 110,100 - 97,350 = 12,750 > 8,770 therefore all of the net earnings from self-employment income is subject to the social security portion of the self-employment tax
Social security portion: 8,770 x 10.4% = 912
Medicare portion: 8,770 x 2.9% = 254
Total self-employment tax: 1,166
OR
8,770 x 13.3% = 1,166
Deductible portion:
Social security portion: 8,770 x 6.2% = 544
Medicare portion: 8,770 x 1.45% = 127
Deductible portion: 671
OR
8770 x 7.65% = 671
4. Gain on Sale of Business Use Computer
Note: the computer is a section 1231 asset (used in a trade or business for > 1year)
Accumulated depreciation: 2009: 1,800 x 20% = 360 2010: 1,800 x 32% = 576 2011: 1,800 x 19.2% = 346 2012: 1,800 x 11.52% x ½ = 104 1,386 Gain: Amount realized 600 Adjusted basis (1,800 – 1,386) (414) Gain – Sec. 1231 gain 186 Section 1245 recapture 186 à entire gain is recharacterized as ordinary income
5. Rental Income/(Loss)
Since the taxpayers rented the home for at least 15 days and did not reside in the home for at least the greater of 15 days or 10% of the rental days during the year, the beach home is considered primarily a rental property (a nonresidence).
Gross rental incomeRental expenses:
Mortgage interest = (84/91) × $4,000 = $3,692