D is corrent. The requirement is to determine the definition of "earned income" for purposes of computing the annual contribution to a Keogh profit-sharing plan by Cobrin, a sole proprietor. A self-employed individual may contribute to a qualified retirement plan called a Keogh plan. The maximum contribution to a Keogh profit-sharing plan is the lesser of $50,000 (for 2012) or 100% of earned income. For this purpose, "earned income" is defined as net earnings from self-employment (i.e., business gross income minus allowable business deductions) reduced by the deduction for one-half of the self-employment tax, and the deductible Keogh contribution itself.
A is incorrect. Deductible Keogh contribution and one-half of self-employment tax.
A is incorrect. Deductible Keogh contribution and one-half of self-employment tax.
C is incorrect. Deductible Keogh contribution and one-half of self-employment tax.
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