Ransford Alda is a self-employed security consultant with estimated annual earnings of $90,000. His social security tax rate is 12.4%, Medicare is 2.9%, and his federal income tax rate 14%. How much estimated tax must Ransford send to the IRS each quarter?
26,370
Is this right?
To calculate the estimated tax that Ransford must send to the IRS each quarter, we need to consider the self-employment tax and the federal income tax.
First, let's calculate the self-employment tax:
Self-employment tax = (Social Security tax rate + Medicare tax rate) * Estimated annual earnings
Social Security tax rate = 12.4%
Medicare tax rate = 2.9%
Estimated annual earnings = $90,000
Self-employment tax = (0.124 + 0.029) * $90,000 = 0.153 * $90,000 = $13,770
Next, let's calculate the federal income tax:
Federal income tax = Federal income tax rate * Estimated annual earnings
Federal income tax rate = 14%
Federal income tax = 0.14 * $90,000 = $12,600
Now, let's calculate the total estimated tax:
Total estimated tax = Self-employment tax + Federal income tax
Total estimated tax = $13,770 + $12,600 = $26,370
To determine the estimated tax that Ransford must send to the IRS each quarter, divide the total estimated tax by 4 (since there are 4 quarters in a year):
Estimated quarterly tax = Total estimated tax / 4
Estimated quarterly tax = $26,370 / 4
Estimated quarterly tax = $6,592.50
Therefore, Ransford must send an estimated tax payment of $6,592.50 to the IRS each quarter.
To calculate the estimated tax that Ransford must send to the IRS each quarter, we need to compute the total tax amount based on his annual earnings and the corresponding tax rates.
First, let's calculate the social security tax amount. The social security tax rate is 12.4% of his earnings. Therefore, the social security tax he owes is:
Social Security Tax = (Social Security Tax Rate) * (Annual Earnings)
= (0.124) * ($90,000)
= $11,160
Next, let's calculate the Medicare tax amount. The Medicare tax rate is 2.9% of his earnings. Therefore, the Medicare tax he owes is:
Medicare Tax = (Medicare Tax Rate) * (Annual Earnings)
= (0.029) * ($90,000)
= $2,610
Now, let's calculate the federal income tax amount. The federal income tax rate is 14% of his earnings. Therefore, the federal income tax he owes is:
Federal Income Tax = (Federal Income Tax Rate) * (Annual Earnings)
= (0.14) * ($90,000)
= $12,600
Finally, we add up the three tax amounts to get the total estimated tax that Ransford must send to the IRS each quarter:
Total Estimated Tax = Social Security Tax + Medicare Tax + Federal Income Tax
= $11,160 + $2,610 + $12,600
= $26,370
Therefore, Ransford must send an estimated tax payment of $26,370 to the IRS each quarter.