Schedule C Compensation

[Guest DBNewbie]

I would like to gain a better understanding, regarding the complexities, of calculating Schedule C compensation for valuation purposes. I understand Line 31 Comp of the Schedule C is being adjusted/reduced by several items: contributions to ancillary EE’s, FICA and Medicare. I would really like to learn more on how the calculation is derived and problems to watch out for. Any help or direction would greatly be appreciated.

[Harwood]

Line 31 of Schedule C of Form ??

[Guest DBNewbie]

Line 31, Net profit or loss. Meaning, I start with the dollar amount listed and start backing out contributions to ancillary EEs to give me Adjusted Sch C comp. Then you would back out FICA and Medicare. That is my understanding.

How do you calcuate it? This is why I posted my question.

thx

[Blinky the 3-eyed Fish]

It's Sch C to Form 1040.

DB, the calculation of net earned income for plan purposes is the same for DB plans and DC plans. The formula is as follows:

Line 31 amount prior to any entries for the ancillary contributions is what you should get from the accountant. From there subtract the ancillary contribution you determined.

Line 31 - ancillary = X

Subtract of 1/2 medicare, SS and the contribution for the sole proprietor

1/2 med = (X * .9235 * .0145)

1/2 ss = min(X * .9235, taxable wage base) * .062

X - 1/2 med - 1/2 ss - contribution for the sole proprietor = net earned income

Net earned income is the compensation figure you use to determine the plan benefit.