Plan Compensation for Self Employed Individual

[LMD1]

I have a sole prop with common law employees. The Schedule C is done on a cash basis method of accounting. The 2015 Schedule C includes the 2014 deduction of the employer cost of the retirement contribution for common law employees. Do I use this net schedule C as the basis to calculate the self employment tax to determine the owners plan compensation? Or, do I add back the 2014 deduction, deduct the 2015 employer cost for the common law employee and then calculate the self employment tax?

[Bird]

I think you have to be consistent with the way the self-employed individual reports his taxes. In this case, simply use the Schedule C bottom line, which includes the 2014 contributions deducted in 2015.

It was not how I was taught, or rather, learned how to do this. I think any description will say to do it in this order:

1. get preliminary Schedule C profit without employer contributions for employees
2. calculate employee contributions, subtract them to get the net/final Schedule C profit
3. calculate the SE tax
4. calculate the owner's contribution

(Some of these are interdependent/circular but it can be done.)

Some accountants think they know everything, or don't want to wait for the final employee contributions, or whatever, and can't be bothered with step 2.

[LMD1]

Thank you. I have only found instruction on the steps you outlined, which is assuming they are working on an accrued method. I couldn't find any guidance on the calculation for the cash method for Schedule C.