In 2020, Mason (single) is a 50 percent shareholder in Angels Corp. (an S Corporation). Mason receives a $180,000 salary working full time for Angels Corp. Angels Corp. reported $400,000 of taxable business income for the year (2020). Before considering his business income allocation from Angels and the self-employment tax deduction (if any), Mason’s adjusted gross income is $180,000 (all salary from Angels Corp.). Answer the following questions for Mason. (Leave no answer blank. Enter zero if applicable.)
a. Assuming the income allocated to Mason is qualified business income, what is Mason’s deduction for qualified business income?
b. What is Mason’s net investment income tax liability (assume no investment expenses)?
Half of self employment tax = Business income * half of self employment tax rate = $400,000 * 7.65% = $30,600.
Modified adjusted gross income = adjusted gross income + business income + half of self employment tax = $180,000 + $400,000 + $30,600 = $610,600.
The threshold for net investment income tax for single is $200,000.
Amount subject to net investment income tax = Modified adjusted gross income - threshold for net investment income tax for single = $610,600 - $200,000 = $410,600.
Net investment income tax = amount subject to net investment income tax * net investment income tax rate = $410,600 * 3.8% = $15,602.80 or $15,603 (rounded off).
(Half of self employment tax rate = self employment tax rate / 2 = 15.3% / 2 = 7.65%).
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