lktp57 Posted May 25, 2017 Share Posted May 25, 2017 What is basis of compensation for a small business person who does not take wages or salary out of business? Can they make a contribution based on gross sales even if they don't take any designated pay? Link to comment Share on other sites More sharing options...
Bird Posted May 25, 2017 Share Posted May 25, 2017 Schedule C businesses never have wages or designated pay or whatever you want to call it..or shouldn't; as discussed elsewhere on this board, it happens sometimes but it's not "right." A sole proprietor's compensation is the Schedule C bottom line profit...with some adjustments; most notably, you have to reduce that number by 1/2 of the self-employment tax, and then you have to factor in the contribution itself. So, for a maximum SEP contribution of 25% of pay, if your net after subtracting 1/2 SE tax is $100K, the max contribution is $20K (100-20=80 and 25% of 80 is 20). Ed Snyder Link to comment Share on other sites More sharing options...
K2 Posted May 25, 2017 Share Posted May 25, 2017 https://www.irs.gov/pub/irs-pdf/p560.pdf See the worksheets in publicatino 560 Link to comment Share on other sites More sharing options...
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