Self-Employment

Question 1

What Form must the components of the Federal Insurance Contributions Act (FICA) tax [Social Security (SS) and Medicare] be reported on?

Answer 1

Form 941

i.e. they both must be reported separately on Form 941

Question 2

What is the rate/ threshold for Social Security (SS) for employers and employees on wages?

Answer 2

6.2% up to $128,400

Question 3

WHAT is the rate for Medicare for employers and employees?

Answer 3

1.45% each

NOTE: There is no wage ceiling

Question 4

WHEN would “Advance Rental Payments” be deductible by the LESSEE?

Answer 4

ONLY during the tax periods to which the payments apply

Question 5

WHAT is the deductible limit per recipient per year for “Business gift” Expenditures?

Answer 5

$25 per recipient per year

Question 6

WHAT are the limits for deduction(s) on “Employment Achievement Awards?”

Answer 6

$400 per employee per year (For - tangible personal property awarded to an employee by reason of length of service or safety achievement)

OR

$1,600 per employee per year if it is a qualified plan award (i.e. an item awarded as part of a permanent, written plan or program that does not discriminate in favor of highly compensated employees)

Question 7

HOW do you calculate FICA taxes on self-employment net income from self-employment?

Answer 7

Take your Net earnings from self-employment and Multiply that by the FICA tax rate (i.e. 0.0765 - which is 7.65%)

Question 8

WHEN is the taxpayer’s profit from incentive stock option (ISO) subject to income tax?

Answer 8

FOR the year in which the stock is sold

Question 9

WHAT is the qualified threshold for employer-provided commuter transportation and parking?

Answer 9

UP to $260 (is excludeable) for employer-provided commuter transportation

UP to $260 (is excludeable) for employer-provided parking

Question 10

WHAT is the tax rate to use when calculating net earnings from Self-Employment (SE)?

Answer 10

.9235

i.e. you would take .9235 and Multiply this rate by your “net profit from self-employment”

Question 11

WHAT type(s) of income are NOT subject to self-employment tax?

Answer 11

• Wages
• Salaries; and
• Tips received as an employee

Question 12

WHAT form(s) of benefit/ compensation does the Social Security tax NOT apply to?

Answer 12

Medical and hospital reimbursements by the employer

i.e. both are excluded from gross income and of which the Social Security tax does not apply

Question 13

WHAT individual (that performs services for a business) is NOT subject to taxes under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA)?

Answer 13

A Director of a corporation

Why? - Because they are considered a “self-employed individual” (NOT) an employee

i.e. So they are not subject to FUTA

Question 14

WHAT are considered “Capital Expenditures?”

Answer 14

• Freight paid on new equipment purchased
• Payment(s) made to eliminate competition
• Cost of rewiring a building to install a new equipment

Question 15

WHAT schedule would an individual proprietor use to deduct taxes imposed based on the amount of fixed assets their business owns?

Answer 15

Schedule C

i.e. As an ordinary and necessary expense of the business, it is reported on Schedule C

Question 16

WHAT is the amortization period for any “remaining balance” of organizational expenditures that are not immediately deductible (i.e. Start-up costs)?

Answer 16

15-years

Question 17

WHAT type of deduction is the self-employment tax?

Answer 17

An “above-the-line deduction”

i.e. IT is partially deductible from gross income in arriving at adjusted gross income (AGI)

Question 18

WHAT is the deductible amount that an employee may exclude for business meals?

Answer 18

50% of business-related meals

NOTE: This exclusion of meals is at the fair market value of the meals