Problem 1 Noor has net income from her sole proprietorship of $121, 250 for 2017
ID: 2597805 • Letter: P
Question
Problem 1
Noor has net income from her sole proprietorship of $121, 250 for 2017. She pays for her own medical insurance coverage (for herself and her immediate family) at $850 per month and places $1,000 per month in a personal qualified retirement account.
Noor’ primary client, Nguyen Ltd., has offered her a job with a salary of $96,000. The company will provide equivalent medical coverage, cover all business expenses, and match Noor’ contributions to a § 401(k) plan up to $500 per month.
Noor values unemployment insurance and workers’ compensation insurance at 2 and 3.5% of her compensation, respectively.
Complete an analysis of Noor’s take home currently, and assuming she sees no substantial differential risks, advise her as to whether she should accept the offer.
Noor’s other income, itemized deductions, and exemptions are not relevant to this decision. All that is relevant for tax is the marginal tax on the difference in taxable income from one choice to the other.
As a contractor:
Net income
Minus: Retirement, medical, self-employment tax, and income tax.
As an employee:
Salary
Minus: Retirement, social security and medicare, and income tax.
Plus or minus: Effects of unemployment insurance and workers’ compensation.
Explanation / Answer
sole proprietor
121250
job
96000
medical
10200
6600
retirment benefit
12000
total
102600
total income
99050
less: unemployment insurance
240
LESS: self employment tax
6062.5
workers compensation
3360
total income
92987.5
net income
99000
less:income tax
0
less : income tax
0
total income
92987.5
total income
99000
sole proprietor
121250
job
96000
medical
10200
6600
retirment benefit
12000
total
102600
total income
99050
less: unemployment insurance
240
LESS: self employment tax
6062.5
workers compensation
3360
total income
92987.5
net income
99000
less:income tax
0
less : income tax
0
total income
92987.5
total income
99000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.