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Subject Author Date
Sep Deduction emma 03-03-2007
|--> Re: Sep Deduction Phoebe Roberts,...03-04-2007
`--> Re: Sep Deduction Mark X. Rigotti...03-04-2007
Posted by emma on March 3, 2007, 5:27 am
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 I have a client that has an S Corp. He pays his SEP
directly from the corporation, as a deduction.

His K1 ordinary income before the Sep deduction will be
$128566. His Salary was $47750 (paid out of the S corp) He
wants to max out his Sep. I'm getting different answers
from different people.

1. The guy that handles his SEP says the amount is 15% or
$43000, whichever is greater. (I don't think this is right)

2. Another CPA I talked to said that you combine the Profit
plus his salary ($128566 + $47750)= $176316 x 20% = $35263

How do we figure the amount for his Sep deduction?

Thanks for your help

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Posted by Phoebe Roberts, EA on March 4, 2007, 9:28 pm
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 emma wrote:

> 1. The guy that handles his SEP says the amount is 15% or
> $43000, whichever is greater. (I don't think this is right)

Probably 25% of wages, or $43,000, whichever is smaller. If
you can find the plan document floating around somewhere, it
may be more restrictive, but not less restrictive.

> 2. Another CPA I talked to said that you combine the Profit
> plus his salary ($128566 + $47750)= $176316 x 20% = $35263

That's how you'd do it for a partnership, but not for an
S-corp.

> How do we figure the amount for his Sep deduction?

The person who prepares the S-corp return should be able to
tell you. (If you don't know how to calculate the SEP
amount, you probably ought not be doing the 1120S, either.).
Assuming no other employees, and an agreeable plan
document, 47,450 x 25% = 11,937.50.

Phoebe :)

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Tim on March 4, 2007, 9:28 pm
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> I have a client that has an S Corp. He pays his SEP
> directly from the corporation, as a deduction.
>
> His K1 ordinary income before the Sep deduction will be
> $128566. His Salary was $47750 (paid out of the S corp) He
> wants to max out his Sep. I'm getting different answers
> from different people.
>
> 1. The guy that handles his SEP says the amount is 15% or
> $43000, whichever is greater. (I don't think this is right)
>
> 2. Another CPA I talked to said that you combine the Profit
> plus his salary ($128566 + $47750)= $176316 x 20% = $35263
>
> How do we figure the amount for his Sep deduction?

Did you read IRS publication 560?

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Mark X. Rigotti, CPA on March 4, 2007, 9:28 pm
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> I have a client that has an S Corp. He pays his SEP
> directly from the corporation, as a deduction.
>
> His K1 ordinary income before the Sep deduction will be
> $128566. His Salary was $47750 (paid out of the S corp) He
> wants to max out his Sep. I'm getting different answers
> from different people.
>
> 1. The guy that handles his SEP says the amount is 15% or
> $43000, whichever is greater. (I don't think this is right)
>
> 2. Another CPA I talked to said that you combine the Profit
> plus his salary ($128566 + $47750)= $176316 x 20% = $35263
>
> How do we figure the amount for his Sep deduction?

The flow thru from an S is not subject to SE - Thus NOT
earned income and NOT eligible for inclusion in the SEP
calculation.

Rgs,

Mark

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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