4.5.1: Practice Problems Corequisite N.5

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(1) Martin Binford is an author. He has no income he would report on line 1a or line 1b of his Schedule SE. He earned $163,380 last year from his books. He had $3,563 in expenses. (Note: He records his net profit in line 2, where it says “Net profit or (loss).”) You do not need to know which schedule or form it comes from, and he is not a minister or member of a religious order. He also does not get a deduction for one-half of self employment tax. How much self-employment tax does he owe (line 12)? Round to the nearest dollar.

$Screenshot of Self-Employment tax form. At the top, it notes: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. Part A: If you are a minister, member of a religious order, or Christian science practitioner and you filed Form 4361, but you had $400 or more other net earnings from self-employment, check here and continue with Part I. Skip lines 1a and 1b if you use the farm optional method in part II. See instructions. 1a: Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A. b: If you received social security retirement or disability benefits. enter the mount of conservation Reserve program payment included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH. Skip line 2 if you use the non farm optional method in Part II. See instructions. 2: Net profit or (loss) from Schedule C, line 31, and Schedule K (Form 1065), box 14, code A (other than farming). See instructions for other income to report or if you are a minister or member of a religious order. 3: Combine lines 1a a, 1b, and 2. 4a: If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3. Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b: If you elect one or both of the optional methods, enter the total of line 15 and 17 here. c: Combine lines 4a and 4b. If less than $400, stop. You don;t ow self-employment tax. Exception: if less than $400 and you had church employee income, enter 0 and continue. 5a: Enter your church employee income from Form W-2. See instructions. 5b: Multiply line 5a by 92.35% (0.9235). If less than $100, enter 0. 6: Add line 4c and 4b. 7: Max amount of combined wages and self-employment earnings subject to social security tax or the 6.2% portion of the 7.56% railroad retirement (tier 1) for 2021. 8a: Total social security wages and tips (total of boxes 3 and 7 on Form W-2) and railroad retirement (tier 1) compensation. If $142,800 or more, skip lines 8b through 10, and go to line 11. b: Unreported tips subject to social security tax from Form 4137, line 10. c: Wages subject to social security tax from Form 89191, line 10. d: Add lines 8a, 8b, and 8c. 9: Subtract line 8d from line 7. If zero or less, enter 0 here and on line 10 and go to line 11.10: Multiply the smaller number of line 6 or line 9 by 12.4%. 11: multiply line 6 by 2.9%. 12: Self-employment tax. Add lines 10 and 11. Enter here and Schedule 2 (Form 1040), line 4. 13: Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 15.$

(2) Which of the following expressions can be used to compute how much self-employment tax Martin Binford owes? How do you know if your answer is correct?

(i) 0.029(0.9235)($163,380 – $3,563)

(ii) 0.124($142,800) + 0.029(0.9235)($163,380 – $3,563)

(iii) 0.124(0.9235)($163,380 – $3,563) + 0.029(0.9235)($163,380 – $3,563)

(iv) 0.029(0.9235)($163,380 – $3,563 + $17,707.20)

(3) The expression below shows another way to calculate Martin’s tax.

\[0.124(142,800) + 0.029(150,881.43 – 142,800) \nonumber\]

Based on this expression, select the statement that describes how Martin’s income is taxed.

(i) Martin pays 15.59% tax on his income.

(ii) Martin pays 44.3% tax on his income.

(iii) Martin pays 12.4% in tax on the first $142,800 of his income. He pays 29% on his income over $142,800.

(iv) Martin pays 12.4% in tax on the first $142,800 of his income. He pays 2.9% on his income over $142,800.

(4) Miguel is moving and wants to estimate what his electricity bill will be in his new apartment. He looks at old bills and sees that he uses around 700 kWh of electricity each month. The utility company charges $6 each month plus 6.726 cents per kWh for the first 500 kWhs and 8.136 cents for each kilowatt-hour above 500. How much will Miguel pay for 700 kWh of electricity?

Workers in the U.S. pay several types of taxes on income, including the FICA tax and the federal income tax. Your federal income tax rate is based on the amount of money you make. Income is broken into levels called tax brackets. The table below shows the tax brackets for 2021.

Taxable Income	Taxes Owed
$0–$9,950	10% of taxable income
$9,951–$40,525	$995.00 plus 12% of excess over $9,950
$40,526–$86,375	$4,664.00 plus 22% of excess over $40,525
$86,376–$164,925	$14,751.00 plus 24% of excess over $86,375
$164,926–$209,425	$33,603.00 plus 32% of excess over $164,925
$209,426–$523,600	$47,843.00 plus 35% of excess over $209,425
$523,601 plus	$157,804.25 plus 37% of excess over $523,600

(5) Calculate the tax for a person with taxable income of $25,000. Round to the nearest dollar.

(6) Calculate the tax for a person with taxable income of $63,500. Round to the nearest dollar.

(7) Refer to your answer for the previous question. The total tax from the previous question is what percentage of the person’s taxable income? Round to the nearest one percent. Write your answer using the Writing Principle.

In planning a Thanksgiving vacation, you want to rent a car for a week and travel the Pacific Highway from San Francisco to San Diego. You want to return to San Francisco via Las Vegas, Death Valley, and Yosemite National Park. This trip covers approximately 1,500 miles. You plan to return the car with a full tank of gasoline. You are considering two options advertised by Hertz:

Toyota Camry, 33 mpg highway, costs $465.59 plus taxes and fees, totaling $553.28.
Toyota Prius Hybrid, 48 mpg highway, costs $634.49 plus taxes and fees, totaling $804.61.

In both cases, you must purchase gasoline, which costs $3.80 per gallon in California.

(8) Find the total gasoline cost of renting and driving the Camry for the trip:

Total gasoline cost is $_________

(9) Find the total cost of renting and driving the Camry for the trip:

Total cost is $_________

(10) Find the total gasoline cost of renting and driving the Prius for the trip:

Total gasoline cost is $_________

(11) Find the total cost of renting and driving the Prius for the trip:

Total cost is $_________

The advertised mpg for new cars is based on a speed of 55 mph. As speed increases above 55 mph, the efficiency reduces dramatically.¹²

3% less efficient at 60 mph
17% less efficient at 70 mph

Compare the efficiency of a Toyota Camry (33 mpg highway) versus a Toyota Prius (48 mpg highway). Round to the nearest tenth.

(12) Camry at 60 mph:

(13) Camry at 70 mph:

(14) Prius at 60 mph:

(15) Prius at 70 mph:

If gasoline costs $3.67 per gallon, how much money would you save by going 60 mph versus 70 mph on the trip of 1,500 miles in the

(16) Camry? $_________

(17) Prius? $_________

(18) How much longer, to the nearest minute, would it take to travel 300 miles at 60 mph versus 70 mph? Write your answer using the Writing Principle.

_____________________________________

¹² www.mpgforspeed.com

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