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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 2061
Experience:  Certified Public Accountant
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How much can i contribute to my SEP plan if i did not pay my

Customer Question

How much can i contribute to my SEP plan if i did not pay my self a salary and i have an S corporation and everything its going to get reported on the K1 i mean all the profits from the s corporation but there is not W2, i mean what is the max i can put on the SEP , please advise , and what would be the difference if i i would have $100K on the schedule C
Submitted: 10 months ago.
Category: Finance
Expert:  Mark Taylor replied 10 months ago.

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.

Customer: replied 10 months ago.
well the income from the schedule C it is $211000.00 thousand and then the S corp it is $39000.00 so total net after expenses it is $250K thousand us dlls. so how much can i contribute ? also can you help me with this question also please
Customer: replied 10 months ago.
I have a taxpreparation business here in North Carolina that is registered with the state and the IRS as and S corporation but in the same office we offer insurance ( auto, home, business, life and health ) i have also 3 employees that work at the office i have a business checking account for the tax preparation business , a business credit card in the name of the tax prep business , and i also have a personal checking account just in my name, the money from the tax revenue goes to the business checking account and the money from the insurance that i receive twice a month i deposit those funds on the personal checking account that i have at the same bank, and i use www.xero.com for my bookkeeping and adp for my payroll services , we also do bokkeeping and payroll services for a small contractors no so many i only have 15 on my book of business, all the expenses are paid from the business checking account and also from the business credit card in the name of tax prep business , so not sure how to report the income on my s corporation, i know that i have to report the income that comes from the prep business to the S corp but what about the income revenue that comes from the insurance companies, from the insurance revenue the insurane companies pay me a 1099 at the end of the year because everything comes on my name and it is reported under my social security number , i did ask and enrolled agent regarding this issue and he advised that i can claim everything on the schedule C i mean just revenue from the insurance companies and then expense it all out on the schedule C as an outside service so the balance will be 0 then transferred the same income on the schedule C to the S corp , then report the profit on my personal tax return K 1 , but im a little scared since this are a 1099 pay in my name , can i do that ? because if i just report everything that came from the schedule C i will not have any expenses since all the expenses were paid from the S corp in the name of the prep business but i do have lots of expenses since tax business it's only from January thru April and then from May and December the most business that we do its insurance and the small clientele that i have for the bookkeeping and payroll services but mainly insurance business so i was thinking to claim all the 1099 on the schedule C and all the income from the tax prep on the S corp , keep in mind that both services are at the same office , and then claiming 3/3 third of business expenses on the schedule C and the other 1/3 third remaining on the schedule C even that all the expenses were paid from the S corp and then put something on my SEP pension plan retirement so it will lower my tax bill a little, i think it will be fear to put some expenses to since most of the year we do insurance only the first form month of the years we are busy with taxes but we also do insurance those months so not sure if i should claim half of the expenses or what to do i need an advise from a similar cases that you guys might have or may be a client that is on the same situation, please advise what to do in this type of situation. thank you very much and i will wait for your response.
Expert:  Mark Taylor replied 10 months ago.

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.

Expert:  Mark Taylor replied 10 months ago.

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).

Customer: replied 10 months ago.
that'smy concern and that's where i need to be careful because of this and i did have expenses but all the expenses were paid from the s corp account , please see below p&l statement ,also its shows negative there but its because all taxes that i paid last year form income tax for 2014 please see below
Customer: replied 10 months ago.
Got it , that's what i would star doing that now then because i have to pay $60K FOR IRS AND 12K FOR THE STATE , thats a lot of money but i guess i don't have any choice.
Expert:  Mark Taylor replied 10 months ago.

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.

Expert:  Mark Taylor replied 10 months ago.

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.

Customer: replied 10 months ago.
those 60K its after putting $53K ON MY SEP but now that you telling me this that i can only contribute 1/4 , so that would be $52750.00
Expert:  Mark Taylor replied 10 months ago.

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.

Customer: replied 10 months ago.
i would allocate then half of the rent expenses on the schedule C and also internet and telephone and contract labor then , because i use those services for the insurance company , and yes i started this year to pay myself a salary with W2 AND my employees too instead of just giving them 1099
Customer: replied 10 months ago.
Got it but if i put expenses that will reduce the net amount on schedule C and the contribution of course will be less right ?
Expert:  Mark Taylor replied 10 months ago.

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.

Customer: replied 10 months ago.
Got it , i understand now , its just complicated sometimes to deal with all this things , but i just want to do thing right and have someone that know what its right , you are helping me a lot, appreciate it , and i think thats what i would do allocating some of the expenses and then later see the difference. also i did receive a form from last yeasr from the $53000 that i contribute from last year do i need to report that form on my tax return this year oh nop i just don't know where to put it.
Expert:  Mark Taylor replied 10 months ago.

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 :)

Customer: replied 10 months ago.
its for the contribution that i made on October 2015 , yes you are right too , lots of my clients don't care but i try to teach them whats right and whats not ,like this year i had to turn away a few because they don't keep any kind of record. so its hard for me to prepare their tax return.
Expert:  Mark Taylor replied 10 months ago.

Your businesses seem to be doing very well.

Customer: replied 10 months ago.
thanks god , need to get marry and have a few kids to lower my taxes haha , but i thank god that i have the money to pay for that
Expert:  Mark Taylor replied 10 months ago.

You will lower your taxes and your disposable income too.

Customer: replied 10 months ago.
sir
Expert:  Mark Taylor replied 10 months ago.

Good luck with everything. Please let me know if you have any questions.

Customer: replied 10 months ago.
Thanks a lot
Expert:  Mark Taylor replied 10 months ago.

It was my pleasure.

Customer: replied 10 months ago.
Thank you i want to asked you if you can help me review them and i will paid for your services.
Expert:  Mark Taylor replied 10 months ago.

Sure I would be happy to help you.

Customer: replied 10 months ago.
Thank you i will give you my email so you can send me you info there, thanks.
***@******.***
Expert:  Mark Taylor replied 10 months ago.

Is your email correct?

Customer: replied 10 months ago.
Im sorry its .- ***@******.***
Expert:  Mark Taylor replied 10 months ago.

No worries.