fess for defined benefit plan

Interesting. I've never had a proprietor with such a plan. Most always they have a defined contribution plan, e.g. SEP, 401k (simple.....)

has anybody else ever heard of such?

ChEAr$, Harlan Lunsford, EA n LA

Harlan Lunsford wrote:

Sure. Here's one discussion:

A quote from the above (severals years old, such that the combined contribution limie at the time was $40,000):

Defined benefit plans have been off our radar screen for years. Since the mid-1980.s, defined benefit plans have been shunned by most employers. In some circumstances, however, a defined benefit plan can be a home run under the new tax laws. The advantage of the one-person defined benefit plan is that contributions much greater than $40,000 per year can be made. But, the situation has to be "right." Defined benefit plans turn on actuarial hocus pocus. The business owner must have a large income (at least $100,000 per year), he or she must be at least 45 year old (for once, older is better), and ---- here.s the hard part --- that income must be sustainable for several years, at least five or more. A defined benefit plan is not a "one shot" item to be used when the owner has a single huge year. In my experience, the people who best fit the profile for one-man defined benefit plans are professionals, sales people, or consultants. If your client meets these criteria, you will need a licensed actuary to design and administer the plan. Mere mortals, such as CPAs, lawyers, and financial consultants, can.t do this. The good news, however, is that very capable actuaries are available locally. When the situation is right, the one man defined benefit plan is pure magic. The take-home lesson is "don't try this at home...".

(End quote.)

Steve

This is definitely a defined benefit plan for a sole proprietor. He has sufficient income to make it a good option and is nearing retirement age. The plan has been in existence for several years.

Here is some information. It looks to me like Rev. Ruling 68-533 allowed deduction of trustee's fees under either Section 162 (i.e. Schedule C) or Section 212 (i.e. Schedule A); Rev. Ruling 86-142 confirms this does not extend to a deduction for broker's commissions on transactions. But then a pair of letter rulings in 1992, 8941010 and 9124034, weakened the Section 162 deduction, saying that the payments may in some cases count towards the section 404 limit on contributions. I suspect this is the background for the common advice that these fees should only be deducted on Schedule A. On the other hand, as this is (unusually) a defined benefit plan, it is not clear the logic regarding section 404 limits holds.

Steve (not a tax professional)

Yes; in the 1980's, it was often possible to put a lot more money into a Defined Benefit plan than into a Defined Contribution plan. (The most extreme case I heard of was a child actor whose working career was expected to end around age 18, so the entire plan could be funded over very few years.)

Seth