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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29918
Experience:  Taxes, Immigration, Labor Relations
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I have a SEP IRA. my total income was $136,016. but I have

Customer Question

I have a SEP IRA for 2014. my total income for 2014 was $136,016. but I have loss of $29,664 and as a self-employed I had expenses of $23390. My question is - what is the maximum contribution I can make for the SEP IRA? I would like to maximize it in order
to pay less tax.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

SEPs are funded by employer contributions only.
As a self-employed individuals - you are allowed to make SEP contributions for yourself - but only based on your net self-employment income.
If your self-employment income is negative - SEP contributions are not allowed.
Any other income woudl not be considered for SEP contribution purposes.
If you have positive self-employment income - your SEP contribution is limited by 20% of that self-employment income - but mot more than $52k (for 2014)

Customer: replied 2 years ago.
Hi Lev - what does "self employment income" mean? is it before tax exemptions? after tax exemptions?
Expert:  Lev replied 2 years ago.

Net "self employment income" for SEP contribution purposes - is the amount reported on 1040 line 12.
That is coming from schedule C after all business deductions.

Customer: replied 2 years ago.
It very hard to understand what you mean - can you explain in simple words? does self employment income include tax exemptions such as business expenses and capital loss?
Expert:  Lev replied 2 years ago.
When you are self-employed person - you are filing schedule C to report your business income and qualified business deductions - correct?
So - on schedule C - we calculate NET business income.
If we take a look at this form
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
we have (Gross income on line 7) MINUS (all expenses deducted on lines 8 - 30) - and will have net business income or loss on line 31.
That amount is transferred to form 1040 line 12.
You may take a look at your form 1040 - and verify that amount.
Specifically for items you mentioned
- personal tax exemption reported on 1040 line 42 - doesn't affect SEP contribution.
- business expenses reported on schedule C do affect SEP contribution because they reduce net business income
capital loss reported on 1040 line 13 - - doesn't affect SEP contribution.