Timing of deduction

[ombskid]

Sch C filer. Profit sharing plan. Accountant misses the deduction for the single employee, but takes the deduction for the owner in 2006. No wages or contribution in 2007. Can they take the deduction for the contribution for 2006 (actually made in 2007) on the 2007 Sch C - even if it creates a loss? Any different answer if it didn't create a loss?

[Mike Preston]

Can be done. No difference.

[ombskid]

I thought so. Thanks

[Blinky the 3-eyed Fish]

Mike, can you elaborate on your answer as to why you think this is permissible? Would you say someone could make contributions for years and not take the deductions until one future year when the total deduction is taken irrespective of current earned income?

[Mike Preston]

Oopsies... missed the "no compensation in the new year" thingy. Maximum deduction is 25% of current year compensation. Don't have *any*? Can't deduct it.

[Guest mjb]

Oopsies... missed the "no compensation in the new year" thingy. Maximum deduction is 25% of current year compensation. Don't have *any*? Can't deduct it.

Why isnt a net opeating loss permitted for 2007?

[Mike Preston]

A deduction for a profit sharing contribution CAN create an NOL. However, the deduction is limited in a given year to 25% of compensation. If no earned income or compensation in the "second" year, then the deduction is limited to ........ $0.

However, had the company otherwise posted a loss, along with compensation of $100,000, then a $25,000 contribution could increase the loss.

[masteff]

Is there anything that prevents simply amending 2006? OP says the accountant missed the deduction, which implies it otherwise was qualified to be taken on the 2006 return.