partner's $18K deduction

[thepensionmaven]

Partnership on extension, partners can make the $18K by the due date of the partnership return.

Can he make two (2) $18K contributions, one for 2016 and the other for 2017.

Suppose, and it is very likely, the payroll company does not stop the dedutions at $18K, can any overage be considered for the calendar year actually paid?

[ETA Consulting LLC]

Typically, the payroll of a Partner in a partnership will not be managed by the payroll company.  All the payroll reports I obtain from non-corporate entities do not report for the partners; since no partner is receiving a W-2.

To answer your question about deposit timing for the partner, they do have until they actually determine what their earned income is for the year to separate the deferral.  Technically, the election of how much to defer must be in place by the end of their fiscal year.  So, if I am a partner, I would make my election by December 31st, but will not actually make my deposit until my CPA determines my earned income for the year (which may be in April).

For partnerships who know their earned income is going to be high enough to actually fund a deferral, there is nothing to preclude them from going ahead and making that deferral during the year (even though they will, technically, earn all their compensation on the last day of their fiscal year).

Good Luck!

[thepensionmaven]

Thanks, ETA.

The 2nd part of the question revolved around the partner making two contributions in the same year - one for the prior year and one for the current year.

I would think that if the calculation of the $18K for one year was over-shot, the balance could be used for the current year?

So there would be one contribution during the year relative to two calendar years?

[Bird]

No question the partner can make two deposits in 2017, one for 2016 and one for 2017.  Or one deposit of $36,000 for that matter.

It does raise questions if a payroll company is involved.  First is knowing whether they are actually paying on a W-2, which they shouldn't be but it happens frequently, in which case, the payroll company is not going to be able to cut a 2016 check and withhold from it.  Second is if they are just cutting checks for draws, then I'd leave the payroll company out of the equation and just have the partner write the check directly.  And finally, I don't know how you have a scenario where the $18K is overshot, unless income is actually under $18K.  Otherwise you elect $18k before the end of the year and put it in, period.

[thepensionmaven]

Thanks very much.

[JRN]

The reference to "$18K" makes me think you are referring to a "401(k) contribution"? I thought that 401(k) contributions by partners had to be contributed within 30 days of the tax year end (i.e., on or before Jan 30th). I don't think the partner's 401(k) contribution can be deposited on or before the partnership tax return due date.

[thepensionmaven]

Yes, 401(k).

Self employed have until the due date of the 1040 plus extension.

[BG5150]

^ or is it the date they actually file?  I've talked to some accountants who say it's okay to accrue the deferral as long as it's actually made before the due date of the return.  For example, an owner files his taxes on June 1, but he has until 9/15 to make all his contributions.

 

And then some say everything has to be in by the time they postmark or otherwise file their return.

[K2retire]

I've also heard by the time the income is calculated -- which could be long before the return is filed.

[spiritrider]

Deferral contributions are technically deemed to be made by the employer and the self employed are not subject to DOL regulations. Therefore this is subject to section 404.

404(a)(6) Time when contributions deemed made 
For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). 

Note: This is tax filing deadline, not when you file.

[Kevin C]

From the preamble to the DOL's 1996 Final deposit regulations:

 

Quote

c. Partnerships
Two comments were received relating
to when contributions by partners to
section 401(k) plans become plan assets.
The letters represent that, under 26 CFR
1.401(k)–1(a)(6)(ii), a partner’s
compensation is deemed currently
available on the last day of the taxable
year, and an individual partner must
make an election by the last day of the
year. They ask when the monies, which
otherwise would be paid to a partner,
but for the partner’s election, become
plan assets, inasmuch as partners do not
receive wages. In the view of the
Department, the monies which are to go
to a section 401(k) plan by virtue of a
partner’s election become plan assets at
the earliest date they can reasonably be
segregated from the partnership’s
general assets after those monies would
otherwise have been distributed to the
partner, but no later than 15 business
days after the month in which those
monies would, but for the election, have
been distributed to the partner.

 

[ETA Consulting LLC]

4 hours ago, JRN said:

The reference to "$18K" makes me think you are referring to a "401(k) contribution"? I thought that 401(k) contributions by partners had to be contributed within 30 days of the tax year end (i.e., on or before Jan 30th). I don't think the partner's 401(k) contribution can be deposited on or before the partnership tax return due date.

You're referring to the SIMPLE IRA rule that is a hard fast 30 days.  This, apparently, trumps the delay for calculating the deferral amount until the CPA determines the earned income of the owner.  This rule does not apply to 401(k).

Good Luck!