Alexa and Maya, married and filing joint income tax returns, derive their entire income from the operation of their retail candy shop. Their 2019 adjusted gross income was $50,000. They itemize their deductions on Schedule-A for 2019. The following unreimbursed cash expenditures were among those made by them during 2019: State income tax $1,200 Self-employment tax $7,650 What amount should they deduct for taxes on Schedule-A for 2019

Alexa and Maya

The amount that they should deduct for taxes on Schedule A for 2019 is:

= $5,025.

Explanation:

a) Data and Calculations:

Adjusted gross income = $50,000

State income tax = $1,200

Self-employment tax = $7,650

Amount they should deduct for taxes on Schedule A for 2019:

State income tax = $1,200

50% of Self-employment tax = $3,825 ($7,650 * 50%)

Total = $5,025

b) Taxpayers who itemize deductions on their federal income tax returns can deduct 50% of self-employment tax and 100% of state and local real estate and personal property taxes, as well as either income taxes or general sales taxes.  Note that state and local taxes have been deductible since the inception of the federal income tax in 1913.

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