Thank you for your answer. I'd like to ask a couple more thing to clear up something I may have misstated or maybe I'm not understanding your answer.
With regard to to S-Corp making a payment to the IRS for taxes and sending it in with the 1120S. I did not mean that would lessen the taxable profits. What I meant to ask was would this be an acceptable way for the S-Corp to pay the taxes directly? And then would I get a credit on my K-1 to apply as taxes already paid in? Is this a possible scenario?
If so where would I report the taxes paid in on the 1120S?
Your suggestion on the SEP IRA is good. I already have a 401 k setup for me in the S-Corp and I already made the employer and employee contributions for 2012. I wish I had contributed more, but it's to late now.
My question is; Can an S-Corp have a 401 K and an SEP IRA and can you contribute to both in one year?
Thank you in advance for your help on this.
I have filed the S-Corp 1120 and need a little help on my personal 1040 regarding deferring income through a retirement account . Would it be possible to do this by phone? I need to explain 3 different types of income I need to deffer. I can pay you by the hour, please advise your hourly fee and a phone number to call.
After doing some more research I'd like to try and explain the situation regarding my wanting to talk by phone about trying to defer some income to lower my personal tax liability on my 2012 1040 return. Perhaps after I explain this it may not be necessary to have a phone call to resolve my questions, but I'd like to leave that option open just in case.
Explanation / Situation:
I have a tax liability as it stands right now on my 2012 1040 (due Oct 15) of $2360.00
I'd like to lower this tax liability if possible as much as possible.
This liability is primarily caused by income we have to report from our K-1's that pass income to us from the Sub S Corp business we have. The profit / income doesn't actual come to us. It stays in the S-Corp. but we have to report the profits on our personal 1040 return.
My wife is also a partner in a Farm Partnership she inherited some years ago. The income from that partnership also stays in the partnership but we have to report it on our 1040 each year. That income is very small, I mention it only because of the strategies I'd like to suggest to lower our tax liability.
Our personal income comes to us in the following manner:
1.) My Wife is a school teacher with a salary.
2.) I receive a small salary from the S-Corp business
3.) We receive interest income from the S-Corp on a note that we setup years ago when we incorporated the S-Corp and sold the sole proprietorship to the S-Corp (This also causes a tax liability)
4.) I also have another small proprietorship business that has income. However this year it has a loss.
5.) My wife receives some royality payment for oil lease income approx. $1200.00 a year. This is reported to us via 1099 Misc but it goes on Sch E of the 1040
We both have retirement accounts. My Wife has a 401 k at work and I have a 401 k plan under the S-Corp. We also have personal individual IRA accounts.
I should have deferred more profit sharing into the S-Corp 401 k, but I didn't know at the time how much to put in because I was behind on the bookkeeping. We also missed contributing to our personal IRA for 2012. I though we had until the tax extension deadline (but I now know I was wrong).
I'd like your opinion as to whether we could open a SEP IRA either personally or under the small proprietorship business I have to make a contribution for 2012 since it could be opened by or before Oct 15th?
My tax program says the employer side of a SEP IRA can't make a contribution for 2012 because it has a loss this year. My question is can I make a personal deferral into a SEP IRA?
Or is it possible to use the interest income that comes to me from the S-Corp on a 1099 INT as an income bases to establish a SEP IRA?
Or is is possible to use the income that we have to report from the K-1's we receive from the S-Corp and the Farm partnership usable as income to setup a SEP IRA?
Or do you have any other suggestions on a way to lower the tax liability for 2012?
Thank you for taking the time to look at this.
You can open and fund a SEP-IRA prior to the extended due date.
You can set up a SEP for your self-employed business even if you participate in your corporation's retirement plan. The net profit of the self employment does limit the amount when figuring the maximum deductible contribution so there is none allowed when there is no self employment net profit.
SEPs are funded by employer contributions only.
However, if you are permitted to make traditional IRA contributions you could have made that individual contribution to the SEP.
The answer to your questions are that you can set up a SEP-IRA for the sole proprietorship but the only contribution allowed would be the same individual retirement account contribution that is allowed to a traditional IRA (by the due date without extension) when there is no profit.
Only earned income is used to compute a traditional IRA contribution and there are limits when modified adjusted gross income is more than $92,000 but less than $112,000 for married filing jointly for 2012 and no allowed deduction over $112,000.
Is it permitted to have a SEP and another plan in the corporation (you cannot use Form 5305-SEP; you must adopt either a prototype SEP or an individually designed SEP.) There is likely not any advantage over just fully funding the 401(k) that you said you have for future years.
Unfortunately, there is nothing else to be done at this point in time that can change the amounts reported for 2012.
You were correct to consider SEP-IRA as the only item allowed up to the extended due date but based on the facts presented that will not change your amount due.
Sorry if this is not the answer that you would prefer, but you can consider looking at 2013 in October or November to project what needs to be done for this year based on your improved knowledge to not repeat the dilemma.
Thank you for the opportunity to be of service.
If you still wish to confer via phone a new question needs to be started.
Please write if you need more discussion or clarification.
Again, thank you.
Thanks for taking the time to explain all of this to me.
Was there anything we could do in the future to defer the K-1 profits from the S-Corp or Farm partnership income, or is it not considered earned income?
How much do I owe you for your time on this?
Thanks again, Dale
The pass through profit is ordinary income and not earned income.
Having your corporation pay more salary or wage may allow a larger 401(k) contribution that would reduce the profit (for the corporation deduction of salary) and net a lower total individual income as the retirement contribution is not included in your taxable wage (unless to a Roth).
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