George Harrison Ford

I'm sorry if my post was all over the place. There is a plan administrator. They actually provided us the total maximum deduction that the partners could take on their personal return based on their self-employment income. I thought those amounts were all we needed in regards to making a contribution, so I didn't ask for any more info. As to your other remarks: The plan administrator took an employee census and since the employees were part-time and did not pass the 1000 hour threshold, they are not in the plan. So a 3% SH match must be made for both partners. Is this match considered additional income to the partners then? I'm sorry for using that word, but I don't know how else to phrase it. I'm afraid I'll just end up asking a ton of questions in this post, so I'll try to keep it bearable. The calculation you mentioned is exactly what shows on the deduction worksheet for self-employed on Pub 560. For the 70% interest partner, we've calculated (and were also notified by the plan admin) that the maximum deductible contribution is $62K using the 25% plan contribution rate. But what actually is this $62K amount to the partner? Is $25K considered the elective deferral and catch-up contribution, and the remaining amount profit sharing? I won't give any names, but the plan document was prepared by the plan admin. Appreciate the help, Bird!

Thanks for your reply, Bird! I'm just an accountant helping prepare the partnership's tax return. I must admit that my knowledge on retirement plans is severely lacking, but I'm learning little by little everyday. There are 2 partners in the company. Not exactly a 50/50 partnership, more like 70/30. The partnership does have employees, but they are all part-time and do not have to be included in the plan. I should also mention that the plan is a safe harbor 401K. I think I may have phrased my question incorrectly. I should've asked if the excess amounts over $25K for the partner will be considered as additional income to that partner. I don't know if this changes your conclusion. Bottom line, I just want to know if the partner will have $200K self-employment income and they are able to take the $62K deduction for 2019. They'll have the same amount of self-employment income and pay the same amount of SE taxes regardless of whether or not they make the 401K contribution. But let's suppose that we do the same calculation for the 30% partner and find that their maximum allowable deduction is $35K (I'm just throwing a number out there, I didn't actually run the calculations). Can the partnership make a contribution match or profit-sharing to that partner? If so, will that extra contribution be considered as additional income to the partner?

Hi all, I'm a little confused regarding partner 401K contribution calculations and how to report this on the Form 1065, K-1, and Form 1040. The situation is this: I have a partner in a general partnership with $200K self-employed income and they want to make the maximum allowable contribution to the partnership 401K ($62K since they are over age 50). I use the deduction worksheet for self-employed provided on Pub 560 and lo and behold they are allowed to take the full $62K deductible contribution. I believe at this point the $62K should be reported on line 13d of schedule K (code R), $200K self-employment income should be reported on line 14a of schedule K. The schedule k-1 should show the same thing: box 13, code R will be $62K, and box 14, code A will be $200K. These amounts then go on the 1040 and the $62K deduction is reported on schedule 1. The CPA is telling me that the amounts in excess of $25K are the partnership matching contributions and that they'll need to pay SE taxes on the excess. Is this the case? I don't see anything on Pub 560 talking about adjusting self-employment earnings, so this just threw me in a loop. I think I explained the situation well, but let me know if I've missed out on any crucial details. Appreciate the help!