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401k EE elective deferral - where accounted for on 1120


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#1 tertue

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Posted 17 November 2010 - 03:06 PM

Where are employEE elective ccounted for/deducted on a C Corps 1120? For example, if an employEE :unsure: defers $10K of the $50K....where is it deducted on the 1120? Would it be counted in with the pension deductions on line 23 (in other words, lumped in with employer contributions from profit sharing, matching, etc) or would the gross amount ($50K) go on line 13.

#2 masteff

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Posted 17 November 2010 - 03:50 PM

Instructions for line 13 say: "Do not include salaries and wages deductible elsewhere on the return, such as amounts included in officers’ compensation, cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan."

So my answer is line 23.
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#3 Bird

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Posted 18 November 2010 - 07:18 AM

Interesting. That is what the instructions say, but my return includes deferrals in compensation (line 12 or 13), and I have to think that's the logical and right way to do it.

#4 tertue

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Posted 18 November 2010 - 03:43 PM

So does it matter if the elective deferrals go on line 12/13 as part of the gross compensation or line 23 as part of pension? When I called the IRS the agent said that if it wasn't part of line 12 or 13 then it would go on line 23. Which leads me to believe there is not a definitive answer. Anyone else out there want to give their opinion....or should we take a poll to see where all you 1120 filers put the elective deferral amounts? Sorry, I just like everything to be done right.

#5 K2retire

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Posted 18 November 2010 - 06:53 PM

I am NOT an accountant. But since we are talking about deferred compensation, it seems logical that it would go on the line for compensation. Particularly since it is the participant's decision (not the employers) to take it in cash or deposit it to the plan.

#6 masteff

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Posted 19 November 2010 - 11:19 AM

First I'll say.... the IRS and logic are not close companions.

Second, having not worked in depth w/ the 1120 in several years, I can't say for certain that nowhere else calls either of those specific lines (like in some worksheet or something), but I'd say it's highly unlikely to have any net tax effect if you put it on line 13 versus line 23. The first possibility that comes to mind is 263A costs but even there it should get sucked back in depending on how you do the calc.
Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

#7 tertue

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Posted 19 November 2010 - 05:38 PM

My main concern is that the 25% deduction for ER contributions "seems" to be way over th 25% when the ER contributions and EE deferrals are altogether on the same line...if that makes sense. Wouldn't the IRS see that and think for instance that $20K is a lot more than 25% of $50k compensation?

#8 masteff

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Posted 19 November 2010 - 05:57 PM

I respectfully think you're overthinking it. The instructions for line 13 are essentially unchanged since at least 1990. http://www.irs.gov/p...120_a--1990.pdf If the IRS was having a huge concern about the 25% restriction, they would have built a mechanism into the forms to ensure compliance long before now.

Also, there are a number of the places that compensation might be reallocated to (such as 263A as I noted), so the IRS is well aware that it cannot rely on line 13 as a true "plan eligible" comp.

Edited by masteff, 19 November 2010 - 05:59 PM.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

#9 austin3515

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Posted 21 November 2010 - 07:38 PM

It definitely is part of compensation. I can prove it too - you wouldn't put the federal income tax withheld (nor the FICA taxes withheld) on a separate line item. Why? Because it is all the empoloyees COMPENSTAION. How you get from their GROSS compensation down to their NET paycheck is not relevant on a corproate tax return.
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#10 Bird

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Posted 21 November 2010 - 08:50 PM

I asked an accountant about it and she looked at me like I had two heads (when I said the instructions seemed to say it did not go on 12 or 13). It seems there's no doubt that's where it goes; I just don't understand what the instructions seem to be getting at.