Debby is a self-employed accountant with a qualified defined benefit plan (a Keogh plan).She has the following income items for the year:
What is the maximum amount Debby can deduct as a contribution to her retirement plan in 2012,assuming the self-employment tax rate is 15.3%?
A) $9,235.
B) $12,000.
C) $50,000.
D) $55,761.
E) None of the above.

Question

Debby is a self-employed accountant with a qualified defined benefit plan (a Keogh plan).She has the following income items for the year:
 What is the maximum amount Debby can deduct as a contribution to her retirement plan in 2012,assuming the self-employment tax rate is 15.3%?
A) $9,235. 
B) $12,000. 
C) $50,000. 
D) $55,761. 
E) None of the above.

Quizplus · Accepted Answer

The maximum amount that Debby can deduct as a contribution to her retirement plan in 2012 is the lesser of 100% of her earned income or $50,000. 
Her earned income is $50,000 (net earnings from self-employment) - $5,650 (half of self-employment tax) = $44,350. 
Therefore, the maximum amount she can deduct is $44,350 since it is less than $50,000. 
Thus, the correct answer is (C) $50,000.

Debby Is a Self-Employed Accountant with a Qualified Defined Benefit