Question

In 2020, Mason (single) is a 50 percent shareholder in Angels Corp. (an S Corporation). Mason...

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)?

Homework Answers

Answer #1

Answer :

B.

$15,603

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%).

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Sneha is a 50% shareholder in an S corporation. In the current year, she is reporting...
Sneha is a 50% shareholder in an S corporation. In the current year, she is reporting $15,000 of salary, $1,500 of interest income, $50,000 of qualified business income from the S corporation and $10,000 of long-term capital gain. Sneha's taxable income before the qualified business income deduction is $55,000. Sneha will be allowed a QBI deduction of A) $9,000. B) $10,500. C) $11,000. D) $15,300. LABEL AND SHOW ALL WORK.
MacKenzie is considering conducting her business, Mac561, as either a single-member LLC or as an S...
MacKenzie is considering conducting her business, Mac561, as either a single-member LLC or as an S corporation. Assume her marginal ordinary income tax rate is 37 percent, her marginal FICA rate on employee compensation is 1.45 percent, her marginal self-employment tax rate is 2.9 percent, and any employee compensation or self-employment income she receives is subject to the 0.9 percent additional Medicare tax. Also, assume Mac561 generated $200,000 of business income before considering the deduction for compensation Mac561 pays to...
In 2020, SML Corp. reported taxable income of $100,000 before any NOL deductions. SML has a...
In 2020, SML Corp. reported taxable income of $100,000 before any NOL deductions. SML has a $170,000 NOL carryover that originated in 2017 and a $90,000 NOL carryover that originated in 2018. (Leave no answer blank. Enter zero if applicable.) a. What is SML’s 2020 taxable income after the NOL deduction? b. What NOLs can SML carry over to 2021?
Mackenzie is considering conducting her business, Mac561, as either a single member LLC or as an...
Mackenzie is considering conducting her business, Mac561, as either a single member LLC or as an S corporation. Determine Mackenzie’s after-tax cash flow from the entity’s business income and any compensation she receives from the business assuming her marginal ordinary income tax rate is 37 percent, her marginal FICA rate on employee compensation is 1.45 percent, her marginal self-employment tax rate is 2.9 percent, and any employee compensation or self-employment income she receives is subject to the .9 percent additional...
10. Mackenzie is considering conducting her business, Mac561, as either a single member LLC or as...
10. Mackenzie is considering conducting her business, Mac561, as either a single member LLC or as an S corporation. Determine Mackenzie’s after-tax cash flow from the entity’s business income and any compensation she receives from the business assuming her marginal ordinary income tax rate is 37 percent, her marginal FICA rate on employee compensation is 1.45 percent, her marginal self-employment tax rate is 2.9 percent, and any employee compensation or self-employment income she receives is subject to the .9 percent...
Jason and Paula are married. They file a joint return for 2020 on which they report...
Jason and Paula are married. They file a joint return for 2020 on which they report taxable income before the QBI deduction of $274,500. Jason operates a sole proprietorship, and Paula is a partner in the PQRS Partnership. Both are a qualified trade or business, and neither is a "specified services" business. Jason's sole proprietorship generates $167,200 of qualified business income and W–2 wages of $50,000 and has qualified property of $20,000. Paula's partnership reports a loss for the year,...
Huy is single, age 40, and operates a sole proprietorship. In 2020, Huy's sole proprietorship generated...
Huy is single, age 40, and operates a sole proprietorship. In 2020, Huy's sole proprietorship generated income of $200,000, and the deductible business expenses totaled $120,000. Huy also had other gross income of $40,000. Huy takes the standard deduction. What is Huy's 2020 taxable income? Which of the following is most accurate? Group of answer choices The QBI deduction is a tax credit, and Huy does not qualify because it only applies to C corporations The QBI deduction is taken...
Jabar Corporation, a C corporation, projects that it will have taxable income of $530,000 before incurring...
Jabar Corporation, a C corporation, projects that it will have taxable income of $530,000 before incurring any lease expenses. Jabar’s tax rate is 35 percent. Abdul, Jabar’s sole shareholder, has a marginal tax rate of 39.6 percent on ordinary income and 20 percent on dividend income. Jabar always distributes all of its after-tax earnings to Abdul. (Input all answers as positive numbers. Do no round any intermediate percentages. Round your answers to the nearest whole dollar amount. Leave no answer...
Birch Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, James, who...
Birch Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception. Last year, James made a direct loan to Birch Corp. in the amount of $8,550. Birch Corp. has paid the interest on the loan but has not yet paid any principal. (Assume the loan qualifies as debt for tax purposes.) For the year, Birch experienced a $25,300 business loss. What amount of the loss...
1) Andy, Jim and Dwight are starting a professional paper shredding company, and they are still...
1) Andy, Jim and Dwight are starting a professional paper shredding company, and they are still exploring the pros and cons of the following types of legal entities: C-corporation Limited partnership S-corporation Andy and Jim will each contribute $200,000 in cash in exchange for their ownership interest. Dwight will contribute a warehouse that he owns that will be used to house the shredder machines. The warehouse has an FMV of $290,000 and is encumbered by a $90,000 mortgage. Dwight purchased...