Earned Income Calculation

[Guest notapensiongeek]

Calendar year 401(k) profit sharing plan, PYE 12/31/2008. Owner was self-employed through 6/30 and then became an S-Corporation (owner was not paid W-2 wages from the S-Corp in 2008). The CPA just gave me the figures to calculate the employer contributions for the year and said that the client was paid $50,000 in "management fees" from a vineyard that are subject to self-employment tax; however, these management fees are not reported on the Schedule C (owner had Schedule C income of appx. $150,000). Do I include the $50,000 when calculating the owner's net earned income or do I ignore it and just use the Schedule C income?

Any assistance on this would be greatly appreciated.

Thanks!!

[A Shot in the Dark]

I would have a few more questions.

Does the vineyard have anything to do with the business that sponsors the 401(k) Plan?

Is the Vineyard a separate employer?

How is the $50,000.00 being reported, W2, 1099?

[Bird]

I'd generally think that income subject to self-employment tax is fair game for plan purposes, but is it related to the business sponsoring the plan, or is it something else entirely? Where is the income reported, if not on Schedule C? I'm thinking, or wondering, if at the very least some other entity has to adopt the plan.

I would be disinclined to count it unless I knew more about it.

[Guest notapensiongeek]

The client is a winery and does (did) vineyard management for a number of vineyards in the area. The CPA said he could report the management fees on either the Schedule C OR on Line 21 of the 1040 (as other income subject to self-employment tax).

[Bird]

It doesn't look to me like line 21 is an appropriate place; that's not close to any of the examples given. I don't know why he wouldn't just add it to the Schedule C, but if he insisted on putting it on line 21, I think I would include it, with a caveat that it's not perfectly clean. If the winery business itself is incorporated now, then you should make sure that both the corporation and the sole proprietor are adopting employers if you're going to count this comp.

[Guest notapensiongeek]

Thanks for all your input!