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Calculating my SEP contribution

My wife and I are self employed. We both have SEPs. My Sched C has gross income and expenses, listing her as contract labor. Her Sched C lists just her amount paid as contract labor. Line 31 of both our Sched Cs $xxxxx.00 Now back to the SEP, I see .25 x compensation. Is it .25 x line 31 of Sched C?

Or, what line number do I multiply by 0.25 to get my maximum Roth contribution?

My accountant has it figured, but I come out with a higher number, he's probably right, but I want to understand it.

Thanks, Mikek

Reply to
amdx
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I found an online SEP calculator that gave the same answer as my accountant gave. I would still like to know how it is calculated. Mikek

Reply to
amdx

See IRS Pub 560 for a detailed explanation. Assuming you want to contribute the maximum amount (not to exceed $53K) to your SEP-IRA (there is no such thing thing as a Roth type SEP-IRA), you will use a rate of 20% times the result of subtracting your SEP tax deduction from your Schedule C net profit. The reason it is 20% and not 25% is that the actual formula is contribution rate times the result of subtracting the SEP tax and your own SEP contribution from the net profit. As your contribution is a function of the rate, there is a table that converts the contribution rate to an effective rate. You can see the table on page 23 of Pub 560.

Reply to
Alan

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