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Taxpayer has a single member S Corp. He pays himself

Taxpayer has a single...

Taxpayer has a single member S Corp. He pays himself $120,000 per year with all payroll taxes taken out.

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

How much can he contribute to his SEP?? Can he also contribute the $5500 to a deductible IRA since he does not have a plan at work? Sorry for hitting send before I had all of the question [email protected]!

Accountant's Assistant: Is there anything else the Accountant should be aware of?

His income from the K-1 (over and above the salary he pays himself) is $140,000.

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Answered in 5 minutes by:
3/11/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,643
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My name’s Lane …

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

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For a shareholder employee off an S-Corp or C-Corp, compensation for this purpose (under both title 26 and ERISA) is W-2 wages.

...

For the SEP, his contribution is simply 25% of compensation

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.25 x 120,000 = 30,000

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And, so sorry, he can not deduct an IRA contribution, becasue the SEP (Simplified Employee Pension). even though housed in an IRA account, is still a workplace covered plan for this purpose.

...

He could contribute far more under a solo 401(k)

...

Where, although, compensation still must be based on wages, he'd have both the 18,000 salary deferral AND a 25% profit sharing contribution based on the 120,000

...

18000 + 30000 = 48,000

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Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,643
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Customer reply replied 4 months ago
Thanks for the quick response.

You're very welcome ... Thanks much or the rating

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