Schedule C profit sharing contribution

[Guest chris4013]

A 2 parnter, 0 ee LLC's profit sharing contribution reduces income applied towards the SE tax. Why doesn't a Sole Pro's PS work the same way?

Also, since the sole props profit sharing does not reduce schedule C income (reported on page 1 of 1040) why would we use the 20% circular formula? Since the contribution is not a deduction towards SE why couldn't we use 25% of schedule C income?

[BeckyMiller]

See IRC Section 401©(2)(A)(v). Any self-employed person must reduce their income for all benefit plan calculations by any amount deductible by them under IRC Section 404. No difference for partners or sole proprietors.

[Guest chris4013]

My follow up question to your reply is why is the partner's deductible for the S/e tax, while the Sole prop's is not.

[Archimage]

What makes you think it is not? I believe this is listed in Code Sec. 164(f)

[Guest chris4013]

Actually, the way I read everything the partners, and the self-employed's share of the contribution does not reduce income for purposes of the SE tax. However, does an llc's?

My confusion comes from proposals where we tell the partners to take their contribution as a profit sharing contribution, rather than 401k, to reduce the S/E tax. But I can not find any information that says a partners ps contribution reduces income for S/e tax.

Can anyone comment on wheter a partner should take their contribution as a PS contribution to avoid S/e tax, or is this incorrect (which I think it is)?

[Archimage]

The deduction for the profit sharing contribution is going to be taken from business income. Deferrals are not a business deduction.

[Guest chris4013]

My reasearch tells me that partners are considerred self employed. Therefore their share of contributions do not avoid S/E taxation, regardless if it's 401k or profit sharing.

[Archimage]

I have misunderstood your post/topic. You are correct in saying that partners of a business are self-employed. The contribution on their behalf is listed on line 30 of Form 1040. A self-employed individual does not get to deduct their own contribution for purposes of calculating SE tax.