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To net or not to net?


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Curious as to what approach you take. A sole prop has Schedule C from two different businesses. One has income of $100,000, one has a loss of $50,000. Defined contribution plan.

Do you
A. calculate based on $100,000?

B. Calculate on $50,000?

C. Give your opinion (mine is that you do not net the two, so $100,000) to the CPA/Client and let them choose?

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Per an ASPPA webcast on Earned Income presented by Darrin Watson, net earnings from self employment (NESE) is based on the total of all (so $50,000 net) for purposes of determining the SECA tax adjustment but he opines that you would use the sum of the NESE from each business, but separately not less than zero. His reasoning is that if entities were incorporated then W-2 would be $100,000. He also states that there is no clear guidance.

In summary, your SECA adjustment should be made using (B) $50,000 and such should be made on (A) $100,000, BUT given the lack of guidance, would suggest you go forward under (C) "our understanding is... but there is no definitive guidance, so you and client must decide".

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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