Testing using net comp - K-1's

[austin3515]

When running testing using net comp, if the owner has K-1 income of say $250,000 AFTER all employer/payroll tax deductions, are other people reducing the comp by the $16,500 in deferrals to test consistently?

I'm not sure there is any basis for doing it this way, it just seems like the right thing to do...

[Blinky the 3-eyed Fish]

Since the 401(k) deferrals have no bearing to arrive at the gross figure (net earned income), if testing on net compensation you should exclude it. The formulas to arrive at net earned income are designed to equal that figure with compensation in a corporation. Excluding it too arrives at that equality.