Chapter 30 Quiz: Financial Management for Irregular Income

Instructions: Choose the best answer for each question. Answer key is at the bottom.

Question 1. Marcus earned $18,000 in a single month from his course launch and spent most of it before his tax bill arrived. Which system, if in place before the launch, would have most directly prevented his tax crisis?

A) A Solo 401(k) account B) Transferring 30% of all income to a separate tax reserve account immediately upon receipt C) Setting a monthly owner's salary before the launch D) Incorporating as an S-Corporation

Question 2. The three-bucket system for creator cash management consists of:

A) Checking account, savings account, investment account B) Operating account, tax reserve, and opportunity/emergency fund C) Platform revenue, brand deals, and merchandise income D) Fixed expenses, variable expenses, and discretionary spending

Question 3. Self-employed creators pay self-employment tax at what rate on net self-employment income?

A) 7.65% — the same employee contribution rate B) 12.4% — Social Security only C) 15.3% — both the employee and employer portions of Social Security and Medicare D) 21% — the corporate tax rate applied to self-employment

Question 4. A creator earns $50,000 net self-employment income. What is the maximum contribution they can make to a SEP-IRA?

A) $6,500 (the IRA contribution limit for individuals under 50) B) $12,500 (25% of $50,000) C) $22,500 (the Solo 401(k) employee elective deferral limit) D) $50,000 (100% of net income)

Question 5. A creator's monthly essential operating expenses are $1,800, and they currently have $5,400 in their business bank account. What is their runway?

A) 1 month B) 2 months C) 3 months D) 4.5 months

Question 6. The quarterly estimated tax payment due dates (in order) are:

A) March 15, June 15, September 15, December 15 B) April 15, June 15, September 15, January 15 C) April 1, July 1, October 1, January 1 D) May 1, August 1, November 1, February 1

Question 7. Using the simplified method for the home office deduction, a creator with a dedicated 200 square foot home office can deduct:

A) $200 (flat rate per square foot) B) $500 (25% of monthly rent) C) $1,000 ($5 per square foot × 200 sq ft) D) $1,500 (maximum regardless of size)

Question 8. Which of the following is the MOST significant advantage of a Solo 401(k) over a SEP-IRA for a creator earning $45,000 in net self-employment income?

A) Solo 401(k) contributions are tax-free at withdrawal B) The Solo 401(k)'s employee elective deferral ($22,500) allows higher total contributions than the SEP-IRA's 25% limit alone C) Solo 401(k) accounts are insured by the FDIC D) The Solo 401(k) has no annual administration requirements

Question 9. At what approximate annual net profit level does converting from a sole proprietorship or single-member LLC to an S-Corporation typically become advantageous for tax savings?

A) $20,000 B) $40,000 C) $60,000–$80,000 D) $150,000

Question 10. For a creator who is completely unbanked and has no startup capital, which of the following is the MOST practical first financial step?

A) Open a SEP-IRA before doing anything else B) Open a free business checking account at a credit union, which often has more flexible account-opening requirements than banks C) Wait until earning $10,000 before building any financial systems D) Use PayPal as a bank account substitute until earning enough for a business account

Answer Key

Question	Answer	Explanation
1	B	Immediately transferring 30% to a separate tax reserve creates the discipline and the money in place before it can be spent. A 401(k) and S-Corp structure both help but don't directly address the cash-spending problem. Owner's salary controls spending going forward but doesn't protect the specific windfall. The tax reserve is the direct solution.
2	B	The three buckets are: (1) operating account for business expenses and owner's salary, (2) tax reserve (30% of income), and (3) opportunity/emergency fund for reserves and savings.
3	C	Self-employed creators pay 15.3% self-employment tax — covering both the employee contribution (7.65%) and the employer contribution (7.65%) that an employer would normally pay on their behalf.
4	B	SEP-IRA maximum contribution is 25% of net self-employment income (after deducting half of self-employment tax). On $50,000 net income (simplified, without the SE tax adjustment), that's approximately $12,500. The exact calculation adjusts downward slightly for the SE tax deduction.
5	C	$5,400 ÷ $1,800/month = 3 months of runway.
6	B	Q1: April 15, Q2: June 15, Q3: September 15, Q4: January 15 of the following year. Note that Q2 covers only April and May (a shorter period than the other quarters).
7	C	Simplified method: $5 × 200 sq ft = $1,000. The maximum is $1,500 (for 300 sq ft).
8	B	For a creator with $45,000 net income, the SEP-IRA maximum is 25% × ~$41,000 (after SE tax deduction) ≈ $10,250. The Solo 401(k) allows $22,500 in employee deferrals alone — more than double. The ability to contribute as an "employee" separate from the employer percentage is the key advantage at lower income levels.
9	C	The general guidance is that S-Corp conversion becomes worthwhile at $60,000–$80,000+ in net self-employment income, where the tax savings on the distribution portion exceed the additional administrative costs (payroll processing, separate tax return). Below that threshold, complexity often costs more than the savings.
10	B	Credit unions typically have more flexible account-opening requirements, fewer fees, and more community-oriented service than traditional banks. For unbanked individuals who may have ChexSystems records or other barriers to bank accounts, credit unions are often the most accessible formal banking option.