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Yes it has been reported on the 1065 in previous years. The husband wife are the only partners with no employees.
As I understand it, there are two pieces of the income to base the calculation on. In 2013, 100% of net adjusted business profits income up to the maximum of $17,500 or $23,000 if age 50 or older can be contributed in salary deferrals into a Self Employed 401k (2012 limits are $17,000 and $22,500 if age 50 or older). Net adjusted business profit is calculated by taking gross self employment income and then subtracting business expenses and then 1/2 of the self employment tax. You can then add a profit sharing contribution up to 20% of net adjusted businesses profits. Net adjusted business profit is calculated by taking gross self employment income and then subtracting business expenses and then 1/2 of the self employment tax. This math can be different if the owners are paid a W-2 salary. If so, in an effort to split, or bifurcate, profits into wages (subject to FICA/Medicare withholdings) and business profits, that the first part of the calculation is based on their wages only. Thanks for asking at Just Answer/PDtax.
I kind of follow your calculation. Is this a part of Publication 560? Can you reference me to a page. Also, where is this recorded in 1065 (K1)?