Question

Kiyara (single) is a 50 percent shareholder of Jazz Corporation (an S Corporation). Kiyara does not do any work for Jazz Corp. Jazz Corp. reported $332,000 of business income for the year (2020). Before considering her business income allocation from Jazz Corp. and the self-employment tax deduction (if any), Kiyara’s adjusted gross income was $282,000 (all employee salary). Answer the following questions for Kiyara. (Leave no answer blank. Enter zero if applicable.)
a. Assuming the income allocated to Kiyara is qualified business income, what is Kiyara’s deduction for qualified business income?
b. What is Kiyara’s net investment income tax liability (assume no investment expenses)?
c. What is Kiyara’s self-employment tax liability?
d. What is Kiyara’s additional Medicare tax liability (include all earned income)?

Answer 1

Answer and Explanation:

a. The computation of Kiyara’s deduction for qualified business income is shown below:-

Kiyara's Share of income is

= 50% × $332,000

= $166,000

Max qualified business deduction is

= 20% × $166,000

= $33,200

b. The computation of Kiyara’s net investment income tax liability is shown below:-

Net investment income tax liability = $166,000 × 3.8%

= $6,308

c. The computation of Kiyara’s self-employment tax liability is shown below:-

Kiyara is not earning Jazz Corp.'s self-employment taxable income because Kiyara is not doing work for Jazz Corp.

Hence, the tax liability for self-employment is 0.

d. The computation of Kiyara’s additional Medicare tax liability is shown below:-

Additional medicare tax liability

= $282,000 - $200,000

= $82,000 × 0.9%

= $738