R1 Notes

Question 1

Self-employment tax

Answer 1

• Self-employment income is subject to federal income tax and self-employment tax. The self-employment tax is made up of Social Security (12.4%) and Medicare (2.9%), for a total of 15.3%.
• 50% deductible as an adjustment for AGI (not an itemized deduction)
• Schedule C of form 1040 (NOT an itemized deduction which would be reported on schedule A)

Question 2

SEP IRA Deductions

Answer 2

• to calculate deductible amount: (Income - 50% of self employment tax) x 20%

Question 3

How long can you carry forward a NOL?

Answer 3

After 2020, you cannot carry it back, but you can carry it forward indefinitely.

Question 4

Are premiums on disability policies deductible?

Answer 4

No - because payments on the policy are to replace lost income, not to pay for medical expenses.

Question 5

Tax benefit rule (refund of taxes paid and how to report)

Answer 5

• you can deduct whatever you pay (state, local and foreign taxes) in the year you pay it up to $10K
• Ex: if the amount is overstated by $5K, but you pay the full $8K in year 2024, you’d deduct $8k in 2024.
  (You should include the $5K refund on your 2025 tax return)