Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan). She has the following income items for the year:
What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2017, assuming the self-employment tax rate is 15.3%?
A)$9,235.
B)$12,000.
C)$46,000.
D)$46,468.
E)None of the above.

Question

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan). She has the following income items for the year: ​
 What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2017, assuming the self-employment tax rate is 15.3%?
A)$9,235. 
B)$12,000. 
C)$46,000. 
D)$46,468. 
E)None of the above.

Quizplus · Accepted Answer

To calculate the maximum deductible contribution for Susan, we need to follow these steps:

Step 1: Calculate Susan's net income from self-employment:

Net income = Gross income - Deduction for self-employment tax - Deduction for contribution to retirement plan

Deduction for self-employment tax = 0.5 x 15.3% x $130,000 = $9,945

Deduction for contribution to retirement plan = maximum contribution limit = lesser of 25% of net income or $54,000

So, Net income = $130,000 - $9,945 - $54,000 = $66,055

Step 2: Calculate the maximum deductible contribution:

Maximum deductible contribution = 25% x $66,055 = $16,514

But since the maximum contribution limit is $54,000, the actual maximum deductible contribution for Susan is $46,468 (which is lesser of 25% of net income or $54,000).

Therefore, the correct answer is D) $46,468.

Susan Is a Self-Employed Accountant with a Qualified Defined Contribution