Jump to content

Pension calculation for two Schedule C's


Recommended Posts

Assume an individual operates two separate, distinct Schedule C businesses as a sole proprietor.

One business has a net profit of $50,000 while the other as a net loss of $5,000.

The line for Schedule C on the 1040 would reflect the combined $45,000 as would the computation for the self-employment taxes.

However, what is "earnings from self-employment"?  Is it only the $50,000 from the profitable business?  Or, the combined $45,000?

And, if the $50,000, what is the "Allowable....deduction for one-half of your self-employment tax"?

Would it be the actual self-employment tax as reflected on the 1040?  Or, would it be the theoretical (higher) amount that would have been deducted if the self-employment income was only $50,000 (and not reduced by the $5,000 loss)?

Thanks

Vinny

Link to comment
Share on other sites

$45,000 all around (aggregate the two apples in one sauce).

If the $50,000 was W-2 from S or C-corp, and $5,000 loss from a sole prop, then (although there is no clear guidance) the thought is you don't cross the streams and you're looking at $50k for comp.

I garnered this from an excellent ASPPA webcast on earned income given by Darrin Watson.

  • Like 1
Link to comment
Share on other sites

I believe that for a sole proprietor the plan is only in the sole proprietor's name, with no reference to any business(es) that the sold proprietor has.

Link to comment
Share on other sites

7 minutes ago, Jakyasar said:

Cannot remember the details but what if the negative sch c did not adopt the plan i.e. only the positive sch c is sponsoring the plan?

Then use the unreduced amount for the determination of current year contribution under the terms of the plan. Remembering to limit the 415 on the basis of aggregated comp.

  • Like 1
Link to comment
Share on other sites

What about a single member LLC? Biz names could be different? Just thinking out loud.

In this case, would Mike's statement would still be applicable i.e. 415 limit is the combination of 2?

Link to comment
Share on other sites

47 minutes ago, Jakyasar said:

What about a single member LLC? Biz names could be different? Just thinking out loud.

In this case, would Mike's statement would still be applicable i.e. 415 limit is the combination of 2?

Yes, still. Single member LLC is just another way to describe a sole prop.

Link to comment
Share on other sites

  • 1 month later...

This may be a little (or a lot) off track but what if instead of two Schedule C's there was one Schedule C and two K-1's.  I have the necessary prior years' earned income from the Schedule C to calculate a large DB contribution.  This contribution would be in excess of the current year's net Schedule C income.  The plan sponsor is the Schedule C Employer.  The Schedule C Employer is an Active Partner in the two Partnerships; 20% ownership in one and 25% in the other. 

My first thought is that the maximum deductible contribution would be limited to the Schedule C Income (less the 50% SE Tax).  However, I do not want to limit his contribution if it is permissible to include any of his K-1 wages for purposes of calculating the maximum deductible contribution.

Any thoughts!   

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...