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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11180
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Where are SEP contributions recorded for individual members

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Where are SEP contributions recorded for individual members of an LLC, reporting as a partnership?

NPVAdvisor :

Hi I can help with this

NPVAdvisor :

Your SEP-IRA contribution can be made by the partnership ... OR up as a deduction on the partners 1040, page 1.

NPVAdvisor :

...Sorry meant to say, in there . or each partner may have a SEP-IRA on their own as a self-employed person

NPVAdvisor :

But NOW ... either way, (in both cases)a SEP deduction winds up as a deduction on the partners 1040, page 1.

NPVAdvisor :

If contributions are made from the partnership - You cannot discriminate and exclude other partnership employees. SEP-IRA contributions made for all employees (includes partners as employees-pub 560, page 5) are deducted as an expense on the form 1065, page 1, line 18. Contributions for partners are also entered on the 1065, page 3, Sch-K, line 11 (and each partners share on their k-1). The effect for the partners are that it adds back to their partnership income and they then take the SEP deduction (passed through) on their 1040, page 1. The only thing accomplished is the cash for the contribution came from the LLC rather than their own pocket. Not really much of an advantage and not really the best idea.

NPVAdvisor :

If you do it this way, you should read pub 560. It gets a little complicated.

NPVAdvisor :
id="post_message_133213" style="font-size: 13px;font-style: normal;font-variant: normal;font-weight: normal;letter-spacing: normal;line-height: normal;orphans: auto;text-align: left;text-indent: 0px;text-transform: none;white-space: normal;widows: auto;word-spacing: 0px;">If contribution is made be each partner out of personal funds - It is common that if there are other partnership employees the partners simply take cash distributions and then make their own individual SEP contribution based upon their total 1040 self-employment income. Another advantage of each partner doing his own SEP-IRA is they may have other self-employment type income on their 1040 that would allow them to make a larger contribution and tax deduction on their 1040. Or one of the partners may not even want a SEP-IRA because they need the money to spend. Its the individual partners choice.
NPVAdvisor :

Make sense?

NPVAdvisor :

As individuals you can contribute based upon what is shown on your 1040 Sch-SE as earned income. That would include your guaranteed payments plus your share of LLC profit passed through on your 1065-k1. Also add any other self-employment income from other business if applicable. See the instructions in pub 560, "Retirement Plans for Small Business". http://www.irs.gov/pub/irs-pdf/p560.pdf
Read references for a self-employed person and have your tax preparer assist you in the exact calculation. You can use the worksheet on page 21 of pub 560 to calculate your contribution. The SEP plan can be setup with form 5305-SEP and contributions made to the trustee financial institution until the due date of your 1040 tax return.

Customer:

Actually it is a mutimember LLC owned by a husband and wife with no employees

NPVAdvisor :

Ok then you're really just making contributions against self employment income ....

NPVAdvisor :

AGain use the SE income

NPVAdvisor :

Net adjusted self employment income is calculated by taking gross self employment income and then subtracting business expenses and then subtracting 1/2 of the self employment tax. An annual SEP IRA contribution can be made between 0% to 20% of that figure up to the annual SEP IRA contribution limit.

NPVAdvisor :

THis might help

NPVAdvisor :

To determine how much you can contribute to a SEP IRA based on your income use the interactive SEP IRA calculator.

Customer:

Thanks, XXXXX XXXXX to review what you have given me so far.

NPVAdvisor :

You can also use this worksheet

Customer:

Thanks, XXXXX XXXXX

NPVAdvisor :

No propble, just come back here if you have additional questions

NPVAdvisor :

If this HAS given you enough information, I would appreciate either an “accept” or a feedback rating of 3 (OK) or better. That's the only way they will pay us here. HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

NPVAdvisor :

THanks

NPVAdvisor :

Lane

Customer:

I will, you have given me what I think I need.

Lane and other Tax Specialists are ready to help you


Thanks so much, Jim.



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Thanks again,

Lane