Schedule C Calc - Self Employed

[austin3515]

Doing an SE calc for a Schedule C / 401k Plan, but they also sponsor a cash balance Plan. How are the contributions to the plan deducted? I assume they are NOT deducted the same way as the 401k employer contriubtions (i.e., on page 1 of 1040) but rather as a business expense to arrive at net income?

Can someone confirm?

[jpod]

I assume you are talking about contributions for the owner. Pretty certain it is lumped in on the same line on page 1 of 1040.

[austin3515]

Except that you cannot differentiate what is on behalf of the owner versus everyone else.

[Lou S.]

Except that you cannot differentiate what is on behalf of the owner versus everyone else.

usually it is allocated in proportion to the normal cost

at least that is the most common method I see

[mbozek]

For self employed owner See IRS Pub 560 for IRS rules for deducting contributions on P 15 and 23. Contribution for owner is deducted on line 28 of the 1040.

Contributions for the employees are deducted on Sked C and reduce the net earnings from self employment of the owner which can reduce contributions for the owner.

Self employed owner cannot make contributions for himself in year if he has a net loss from self employment even if he contributes for common law employees based on their compensation.

[austin3515]

Sorry, so does that mean the portion of the DB contributions contributed to the plan that is allocable to the owner (allocated based on normal cost) is deducted on page 1 of 1040?

[mbozek]

Line 28 is the only place where the self employed owner can deduct pension contributions for himself on the 1040. Contributions for common law employees are deducted on the sked C as a business expense. The amount of the line 28 deduction is subject to the additional limits described in Pub 560 P15 and 23 which can reduce the deduction to less than what would be permitted if the owner was a common law employee.

[austin3515]

OK, here is what is bothering me. I have never had an actuary tell me "here is what the owner needs to deduct on page 1 of 1040." Are there actuaries out there who can attest to whether or not they provide that information? I think I would have seen it by now.

[mbozek]

Austin:

I don't know what the actuaries tell the owner of the business about how his her contribution to a DB plan is determined and that he enters it on line 28.

I have a better question - what do actuaries tell the owner/tax preparer about the amount of the DB contribution for employees deducted on the Sked C and the portion of the contribution for the owner that is deducted on line 28? I don't think the actuaries tell the owner that his contribution could be limited to his net earnings from SE or any of the limitations listed in Pub 560.

[K2retire]

Back in they pre PPA days when I worked on DBs, the actuaries would NOT give such an attestation. The TPAs were left to calculate it as best they could.

[Bird]

The owner's contribution is definitely deducted on the 1040 (or it should be...I know some accountants who do it on the Schedule C but that is wrong). As for an actuary telling you how much is for the owner, I think s/he'd tell you something like "well, the contribution is the for the entire plan, and I can't really specify how much is for each participant, but you might allocate it in proportion to the normal cost [as suggested above]." (But let's say the contribution is much higher or lower than the total NC...really, anything over the employees' normal costs is going to go for the owner, so you might want to do it that way.)

[austin3515]

Oy vey.

[Calavera]

http://benefitslink.com/boards/index.php?/topic/55122-allocation-of-contribution/?hl=allocation

[Calavera]

I don't think the actuaries tell the owner that his contribution could be limited to his net earnings from SE or any of the limitations listed in Pub 560.

Actuaries don't but very good actuaries do.

[austin3515]

Thanks Calavera - that link was very helpful!