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Guest Jhagan

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Guest Jhagan

OK - crunch time. I need an explanation with question #13 from 06/04/98 test.


What is the maximum deductible contribution on behalf of the sole proprietor for 1997 (rounded)?

- calendar year money purchase

- 10% contribution

- sole proprietor's earned income before any deduction for contributions and self employment tax is $150,000

- eligible compensation for employees - $47,360

-self employment tax is $12,000

Answer - $12,660


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Guest Bill

First reduce for 1/2 of soc sec tax ($6,000), then reduce for ee's contribution ($4736) This leaves $139,264 for compensation plus 10% contribution, dividing by 1.1 gives comp of 126,604 and contribution of 12,660

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