Question

Eva received $60,000 in compensation payments from JAZZ Corp. during 2018. Eva incurred $5,000 in business expenses relating to her work for JAZZ Corp. JAZZ did not reimburse Eva for any of these expenses. Eva is single and she deducts a standard deduction of $12,000. Based on these facts answer the following questions:

Use Tax Rate Schedule for reference. (Round your final answer to the nearest whole dollar amount.)
a. Assume that Eva is considered to be an employee. What is her regular income tax liability for the year? (Round your answer to 2 decimal places.)
Regular tax liability: $____________________
b. Assume that Eva is considered to be a self-employed contractor. What is her self-employment tax liability for the year? ​
Self-employment tax liability: $___________________
c. Assume that Eva is considered to be a self-employed contractor. What is her regular tax liability for the year? (Round your answer to 2 decimal places.)
Regular tax liability: $____________________​

Answer 1

A.Regular income tax liability

$8,181.25

B.Self-employment tax liability $6,870.84

C.Regular tax liability $7,538.50

Step-by-step explanation:

a.The computation of Eva's regular income tax liability

(1) Salary $60,000

(2) Standard deduction(12,000)

Itemized deductions less than standard deduction.

(4) Taxable income (60,000-12,000)$48,000

(48,000 – 34,000) × 25% + 4,681.25 [see tax rate schedule for Single individuals]

Therefore Eva's regular income tax liability is $8,181.25.

b. Calculation for Eva self-employment tax liability for the year

The self-employment tax rate is 12.4% of the Social Security tax

Hence, Self-employment tax applies to net earnings

92.35% of the net earnings from self-employment is been often subjected to self-employment tax.

Hence,

Net Earnings = $.60,000 x 92.35% = $ 55,410

Therefore,

Eva Self-employment tax liability will be:

= $ 55,410 x 12.4% = $6,870.84

c.Calculation for Eva regular tax liability for the year

Eva received compensation for the Year = $60,000

Standard deduction = $12,200

Taxable Income for the Year = $47,800

Tax Brackets and Rates, 2018

Rate For Unmarried Individuals, Taxable

Income Over

10 $0

12 $9,700

22 $39,475

24 $84,200

32 $160,725

35 $204,100

37 $510,300

Hence

Eva's Regular Tax liability for the Year 2019 will be calculated as:

- 9,700 10 970.00

9,700 39,475 12 4,737.00

39,475 8,325 22 1,831.50

Total 7,538.50

970.00+4,737.00+1,831.50=7,538.50

Therefore Eva's Regular Tax liability for the Year 2018 will be $7,538.50