Question

Brice is a single, self-employed electrician who earns $60,000 per year in self-employment income. Brice paid the following expenses this year. Which of the expenses are deductible for AGI?

1. The cost of health insurance (not purchased through an exchange)
2. The employer portion of self-employment tax paid
3. Penalty on early withdrawal of funds from a certificate of deposit

A. Numbers 1 and 2 only.

B. Numbers 1 and 3 only.

C. Numbers 2 and 3 only.

D. None of these is deductible for AGI.

E. All of these are deductible for AGI.

Answer 1

Brice can deduct the cost of his health insurance and the employer portion of his self-employment tax for AGI. Penalties on early withdrawals of a CD are not deductible for AGI.

Step-by-step explanation:

Brice, a self-employed electrician, can deduct certain expenses for Adjusted Gross Income (AGI). Specifically:

1. The cost of health insurance for self-employed individuals can be deducted for AGI, provided it is not purchased through an exchange. This helps lower the taxable income.
2. The employer portion of self-employment tax paid is deductible for AGI. Since self-employed individuals are both employer and employee, they can deduct the employer-equivalent portion of their self-employment tax, which is half of the total self-employment tax.
3. However, a penalty on early withdrawal of funds from a certificate of deposit generally cannot be deducted for AGI. This type of expense is not considered a business expense related to self-employment.

Therefore, the correct answer is A. Numbers 1 and 2 only.