Z is unmarried, claims a dependency exemption for his 18-year-old child who lives with his former spouse, and has the following items of income and expense for his calendar year 2012:
Income from sole proprietorship:
Gross income$ 42,600
Cash operating expenses$ 14,500
Tax depreciation expense + 4,950(19,450)
Net income23,150
Interest income$ 2,540
Personal exemption1
Dependency exemptions for minor children1
Estimated tax payments$ 5,000
Calculate Z's adjusted gross income, taxable income, gross tax, and tax due or refund. Assume that the combined O.A.S.D.I. and M.H.I, self-employment tax rate is 15.3 percent. Present your answers in good form. Use the tax rate schedules for computing the tax.
suggested answer
Self-employment tax ($23,150 × 92.35% × 15.3%)$ 3,271
Income from sole proprietorship$23,150
Interest income2,540
Deduction for one-half self-employment(1,635)
Adjusted gross income$24,055
Standard deduction in 2012(5,950)
Personal and dependency exemptions in 2012(7,600)
Taxable income$10,505
Federal income tax
($8,700 × 10%) + [($10,505 - $8,700 = $1,805) × 15%)]1,140
Estimated tax payments(5,000)
Tax due (refund) $(3,860)
please explain what the 92.35% is and what OASDI and MHI is and how the sole proprietor tax is calculated