Income from sole proprietorship and K-1 source

[katieinny]

The individual has sole proprietorship income from a consulting business. He also has 23% ownership in another business and gets a K-1. The CPA tells me that the tax program is including income from both sources when calculating the SEP contribution. I don't think the K-1 income should be included. That business does not have a retirement plan and no one else is getting a contribution. Does anyone disagree?

[Gary Lesser]

Assuming the entities are not controlled, related, or affilliated, you are correct. However, when calulating the 1/2 of SE tax deduction for calculating earned income (for the sole proprietorship), the net SE gain (or loss) from unrelated entities has to be taken into account. If there is a net gain, the 1/2 of SE tax amount then has to be prorated (on some reasonable basis) between the two entities.

I've posted versions of QP-SEP Illustrator Software in this forum; it may be usefull in crunching these numbers for you.

Link to QP-SEP Illustrator Post

Hope this helps.

[katieinny]

Gary: Thank you for confirming my thoughts. I tried the link, but I don't think it went to the right place.