SIMPLE IRA LLC single owner

[Guest robertcusick]

For a single owner LLC, am I correct in utilizing Schedule C, line 31 as the amount on which to base the employer's 3% matching contribution for him/herself? If not , what is the correct calculation?

Thanks in advance.

[Bird]

You're supposed to take that number (profit) and subtract 1/2 of the self-employment tax paid on it (let's call that "profit after SE tax"). Then take that number and subtract the 3% contribution and then multiply that by 3% to get the contribution. Since those last steps are interdependent, the contribution is .03/1.03 X [profit after SE tax].

(.03/1.03 is a little less than 3%, 2.913... )

That assumes the deferral contribution being matched is at least 3% of the ultimate net compensation deriving from these calcs.

[Gary Lesser]

I {respectfully} disagree; for a SIMPLE IRA, the contribution amount is ignored. [iRC 408(p)(6)(A)(ii)]

There is only one reduction for SE tax (100% - 7.65%) = 92.35%

92.35% times NESE times Rate (3%), or

2.77050% times NESE.

NESE is shown on Form 1040, Scedule SE (line 4, Section A, or line 6, Section B).

[Bird]

Interesting; I guess that's another example of why one shouldn't assume SEP and SIMPLE calcs are the same as qualified plan calcs. I stand corrected.

(ii) Self-employed In the case of an employee described in subparagraph (B), the term “compensation” means net earnings from self-employment determined under section 1402 (a) without regard to any contribution under this subsection. The preceding sentence shall be applied as if the term “trade or business” for purposes of section 1402 included service described in section 1402 ©(6).