Have a Finance Question? Ask a Financial Expert Online.
Hi, my name is Mark. I will be happy to help you with your questions. The amount of a SEP contribution is limited by earned income. If you did not have any wages in the S-Corporation you would not be able to make a SEP contribution. If all of the income was from a schedule C you would be able to contribute roughly 1/4 of your earnings to a SEP or just under $25,000.
I hope you found this information to be beneficial. If this answered your question please take a few moments to rate my response. A rating is needed in order for me to receive credit for helping you today. The rating bar is located at the top of the page – ranging from 1 to 5 stars. If you need me to clarify aspect of my response or if there are additional areas of the question that you would like me to consider please let me know. I would be happy to continue the discussion. It has been my pleasure helping you today.
You could claim outside services in the amount equal to the 1099. The issue with this is now you would have a S-Corporation with a net income of $250,000 with zero salaries. The risk would be that the IRS would look for a reasonable salary. If you report the $210,000 on a Schedule C with zero expenses (I know you are aware of this) all of the income would be subject to Self Employment taxes. You would be eligible to make close to a max SEP contribution of $50,000 or so.
In future years you could deposit the insurance proceeds to the business accounts. You would need to pay yourself a reasonable salary. When you would receive the 1099 at the end of the year you would recognize the income on Schedule C you would include a deduction in an equal amount with the description that this was reported in the S-Corporation (EIN#xx-xxxxxxx).
If you report all of the income on Schedule C you of course would have a ton of taxes. You would not have a lot of risk from the IRS perspective. The other option would be try to allocate some of the expenses for the insurance business to your schedule C. This would increase the income of the S-corporation and your risk of not having a reasonable salary.
Now, if you recognize income of $120,000 on schedule C you would max out the FICA limit. This reduces your exposure for not having compensation in the S-Corporation. The only thing you would be at risk for would be the Medicare portion 2.9%. At $130,000 you are looking at a potential liability of $4,000.
It is roughly 1/4. It is reduced a little by self employment taxes. This would be limited by the amount of net income that is reported on Schedule C. If you report the $210,000 on Schedule C the SEP contribution would be around $50,000.
Allocating a portion of the rent, internet, and contract labor makes sense. This would reduce the amount of income on the Schedule C and the amount of SEP contribution that you are able to make.
What year did the form say. It sounds like it was your 2014 contribution that you made in 2015. This should go one page 1 of the 1040 on line 28 (the amount you contribute this year). 99% of the people would not mind having these problems :)
Your businesses seem to be doing very well.
You will lower your taxes and your disposable income too.
Good luck with everything. Please let me know if you have any questions.
It was my pleasure.
Sure I would be happy to help you.
Is your email correct?