Does 404 deduction limit Apply?

[Guest WantsToLearn]

A non profit org wants to adopt a profit sharing plan.

There are about 15 employees, with wages ranging from $20,000 to $85,000.

Is there anything wrong with making contributions of $20,000 to everyone?

No one would get more than 100%. But the total contribution would be $300,000 ( 15x $20,000)

But how would that affect the deduction of 25% limit,? Total comp is $650,000 so 25% would be $162,500.

Since non-profit cannot deduct anyway

Thanks in advance.

[Mike Preston]

My understanding is that the deduction limitation applicable to "for profit" entities does not apply to non-profits.

[david rigby]

I try not to disagree with Mike.

BTW, if this "non-profit" has enough cash to make a PS contribution of 46% of total payroll, could someone (IRS perhaps) question its non-profit status?

I'm just curious.

[AndyH]

Don't we need to make sure that the non profit has "at all times been exempt from Federal income tax", including non-payment of UBTI? And never have had a taxable subsidiary?

These issues are more common than one might think.

[Mike Preston]

Good point, Andy.

[Guest WantsToLearn]

Good points. Thanks very much

They appear to be legit in all areas.

So assuming they are truly non-profit- it looks like we agree they are not limited to 404. I know the three of you are among those most likely to know- so since no one rebuts, it seems OK.

Are they limited to anything else like using a uniform formula, including a flat dollar?

[david rigby]

Thou shalt not violate Section 415.

And 401(a)(4), although appears to be a no-brainer from your original data.