Question

Jacob is a member of WCC (an LLC taxed as a partnership). Jacob was allocated $150,000 of business income from WCC for the year. Jacob’s marginal income tax rate is 37 percent. The business allocation is subject to 2.9 percent of self-employment tax and 0.9 percent additional Medicare tax. (Round your intermediate calculations to the nearest whole dollar amount.)

a. What is the amount of tax Jacob will owe on the income allocation if the income is not qualified business income?

Answer 1

Solution:

Particulars	Amount($)
1. Business income allocation	$150,000
2. QBI deductions	$0
3. Deduction for 50% of SE tax(150,000*0.9235*0.029*0.5)	$2,009
4. Net income taxable business income (150,000 - 0 - 2,009)	$147,991
5. Income tax paid by the owner (147,991 * 0.37)	$54,757
6. Self employment tax (150,000*0.9235*0.029)	$4,017
7. Additional medicare tax (150,000 * 0.9235 * 0.009)	$1,247
8. Owner level tax. (54,757 + 4,017 + 1,247)	$60,021