Calculating Maximum Deductible for Partnership

[Guest retirementadm]

Does anyone know how to caclulate the Maximum Deductible for two Partners (50/50) with salary below the compensation cap for 2008? Both have DF Max and 4% Safe Harbor. I would greatly appreciate any help you can provide. Thanks.

[SheilaD]

Does anyone know how to calculate the Maximum Deductible for two Partners (50/50) with salary below the compensation cap for 2008? Both have DF Max and 4% Safe Harbor. I would greatly appreciate any help you can provide. Thanks.

For each partner:

1) Their share of Total partnership income (before deferral) is reduced by their share of the cost for any non-partner employees.

2) Then the self-employed SS/Medicare tax is subtracted.

3) The remaining income is divided into compensation, 4% safe harbor and profit sharing (if desired) such that:

a) Deferral Plus safe harbor plus Profit sharing do not exceed 415 and

b) Safe harbor for all employees plus profit sharing for all employees does not exceed 25% of compensation for all employees including the partnership income reduced by safe harbor and profit sharing.

This may be an iterative calculation depending on the situation.

Note that partner deferral does not reduce partner's net income for the 25% of compensation test or non-discrimination testing if applicable.

Having re-read this -- it might be easier to illustrate with real numbers.