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Sep Deduction

I have a client that has an S Corp. He pays his SEP directly from the corporation, as a deduction. His K1 ordinary income before the Sep deduction will be $128566. His Salary was $47750 (paid out of the S corp) He wants to max out his Sep. I'm getting different answers from different people.

  1. The guy that handles his SEP says the amount is 15% or 000, whichever is greater. (I don't think this is right)
  2. Another CPA I talked to said that you combine the Profit plus his salary (8566 + 750)= 6316 x 20% = 263 How do we figure the amount for his Sep deduction?

Thanks for your help

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Reply to
emma
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Probably 25% of wages, or $43,000, whichever is smaller. If you can find the plan document floating around somewhere, it may be more restrictive, but not less restrictive.

That's how you'd do it for a partnership, but not for an S-corp.

The person who prepares the S-corp return should be able to tell you. (If you don't know how to calculate the SEP amount, you probably ought not be doing the 1120S, either.). Assuming no other employees, and an agreeable plan document, 47,450 x 25% = 11,937.50. Phoebe :)

Reply to
Phoebe Roberts, EA

Did you read IRS publication 560?

Reply to
Tim

The flow thru from an S is not subject to SE - Thus NOT earned income and NOT eligible for inclusion in the SEP calculation. Rgs,

Mark

Reply to
Mark X. Rigotti, CPA

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