Adjusting Gross Income With Self-employment And Other Items

Question 1

What is the contribution limit for SEP IRAs based on?

Answer 1

A percentage of Net self-employment earnings

Net earnings are calculated as net self-employment profit minus half of the self-employment tax.

Question 2

How do you calculate the maximum contributions for an SEP IRA?

Answer 2

Multiply net earnings by the current year contribution limit (e.g., 20% or 25%)

This calculation gives the maximum contributions allowed for an SEP IRA.

Question 3

What can contributions to SEP IRAs be used for?

Answer 3

To reduce gross income of an individual

This is a key difference between SEPs and traditional 401(k)s.

Question 4

What can self-employed individuals deduct from their gross income?

Answer 4

Half of the self-employment tax and health insurance premiums

Deductions for health insurance premiums can only go up to net profit and cannot cause income to go below zero.

Question 5

Under what conditions can alimony be deducted?

Answer 5

If the divorce was finalized before 2019

This is a significant change in tax law affecting alimony deductions.

Question 6

What is the limit on capital losses that can be used to reduce gross income in a given year?

Answer 6

$3,000

Any remaining capital losses must be carried forward to future tax years.

Question 7

Are moving expenses deductible for self-employed individuals?

Answer 7

No, unless they are active duty military

This reflects the changes in tax law regarding moving expense deductions.

Question 8

Fill in the blank: Self-employed individuals can deduct _______ from gross income.

Answer 8

half of the self-employment tax

Question 9

True or False: All capital losses can be used to reduce gross income in the year they occur.

Answer 9

False

Only $3,000 can be used in a given year; the rest must be carried forward.