Question

Michael operates his health food store as a sole proprietorship out of a building he owns. Based on the following information regarding Year 6, compute his net self-employment income (for SE tax purposes) for Year 6.

Gross receipts $100,000
Cost of Goods Sold 49,000
Utilities 6,000
Real estate taxes 1,000
Gain on sale of business truck 2,000
Depreciation expense 5,000
Section 179 expense 1,000
Mortgage interest on building 7,000
Contributions to Keogh retirement plan 2,000
Net operating loss (NOL) from Year 5 10,000

a. $24,000
b. $16,000
c. $31,000
d. $14,000

Answer 1

c. $31000

Step-by-step explanation:

Net self-employment income are gross income gotten from a trade or business, less allowable deductions attributable to the trade or business. When calculating self employment income, capital gains and losses, contributions for retirement, net operating losses are not considered.

Given that:

Gross receipts $100,000

Cost of goods sold $49,000

Utilities $6,000

Real estate taxes $1,000

Depreciation expense $5,000

Sec. 179 expense $1,000

Mortgage interest $7,000

Net self-employment income = Gross receipts - Cost of goods sold - Utilities - Real estate taxes - Depreciation expense - Sec 179 expense - Mort-age interest

Therefore, Net self-employment income = $100000 - $49000 - $6000 - $1000 - $5000 - $1000 - $7000 = $31000