Discussion:SEP-IRA Contribution to an S-Corp employee/owner
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Discussion Forum Index --> Tax Questions --> SEP-IRA Contribution to an S-Corp employee/owner
| 20 January 2008 | |
| My clients is an employee/owner of an S-Corp. She recieved $70K in W-2 from the corp, took another $45K as profit distribution and the corp has a profit of $77K. No contributions were made through her salary
My question is how much can she contribut to her SEP-IRA? Is the W-2 income can be accounted as SE income? (25% of $70K) Can I calculate the 25% on the corp profit and list it as pension plan expense? (25% of $77K). Otherwise, I might consider the 45K as officer compensation, issue a 1099 and count it as income subject to SE and then enter the amount on the 1040 as 25% of 45K. Thanks, Shai Ben-Yehoshua, CPA | |
Death&Taxes (talk|edits) said: | 20 January 2008 |
| This has been answered many times here, and there are many fine discussions. 25% of her gross salary. Distributions do not count, nor does company profit. The beauty is the SEP contribution is made with pre-FICA/Medicare income, unlike on a Schedule C. | |
| 20 January 2008 | |
| AFAIK, the S-CORP can contribute a maximum of 25% of her W2 salary on her behalf. That would be $70K * 0.25 = $17,500. This would reduce the "distributable" profits to $59,500 - if I understand your stmt correctly. | |
Rgtaxservice (talk|edits) said: | 20 January 2008 |
| Issuing a 1099 for the 45K distribution, thus making it subject to SE, kind of defeats the purpose of the S-Corp don't you think? | |
| 20 January 2008 | |
| SEP-IRA is strictly an EMPLOYER funded plan.
EmployEE is STILL LIABLE for FICA/Medicare on total gross salary. SEP-IRA contribution of employER has no effect on employee's payroll. | |
| 20 January 2008 | |
| D & T - You were probably thinking of a SARSEP - that was discontinued about 10 years ago. | |
Death&Taxes (talk|edits) said: | 20 January 2008 |
| No, U.S., what I meant is that if he has 120K of profit, and gives himself the salary of 70K, his W-2 is 70K but the SEP is then 25% of it for a pension deduction on the return.....if with 120K profit he paid himself 88K, his SEP would be 22K but the SEP is a corporate deduction before he takes wages. | |
