Deductibility of Accrued Profit Sharing

[Nassau]

I received a question from one of my clients and was wondering if someone could assist me in providing a response back to the client. The heart of the question is, can the client continue to make the profit sharing contribution for 2012 earnings and the 2012 plan year and still deduct the contribution from their 2013 tax return instead of 2012?

Below is additional information that the client forwarded to me.

As a follow up to our phone call, we wanted to pass along some information regarding the potential deferment of the 2012 accrued profit sharing deduction to 2013. In order to defer the payment of the 2012 accrued balance at 12/31/2012 to a 2013 deduction, the company should designate in writing to the plan trustee that the contribution is on account of the 2013 taxable year of the employer. Doing this, would push the deduction from 2012 to 2013. This would mean that on the 2013 return, there will be the 12/31/2012 accrued balance deducted in 2013 and the accrued balance at 12/31/2013 paid in 2014 will be deducted on the 2013 tax return.

There is a limitation out there for 2013, that being the 2013 “double deduction” (the 2012 non-deducted portion and 2013 accrued deduction). The total of these cannot exceed 25% of W-2 compensation of the participants for 2013. I am assuming this will not be an issue for the company, but wanted to inform you of this limitation.

[Flyboyjohn]

General rule is that contributions are deductible in the year PAID with the well-known exception being that the employer can ELECT to deduct contributions paid during the filing period on the prior year return.

The employer ELECTION is simply made by claiming the deduction on the prior year return.

So the answer is there's no formal designation required, simply don't deduct the contributions until the 2103 return.

But be aware of the potential 25% deduction limitation problem in 2013 as noted by the prior commentator above.

[QDROphile]

It is best practice to designate for which year a contribution is made, and the plan document may provide for the designation as described. The plan document should be followed.