lktp57 Posted May 25, 2017 Posted May 25, 2017 What is basis of compensation for a small business person who does not take wages or salary out of business? Can they make a contribution based on gross sales even if they don't take any designated pay?
Bird Posted May 25, 2017 Posted May 25, 2017 Schedule C businesses never have wages or designated pay or whatever you want to call it..or shouldn't; as discussed elsewhere on this board, it happens sometimes but it's not "right." A sole proprietor's compensation is the Schedule C bottom line profit...with some adjustments; most notably, you have to reduce that number by 1/2 of the self-employment tax, and then you have to factor in the contribution itself. So, for a maximum SEP contribution of 25% of pay, if your net after subtracting 1/2 SE tax is $100K, the max contribution is $20K (100-20=80 and 25% of 80 is 20). Ed Snyder
K2 Posted May 25, 2017 Posted May 25, 2017 https://www.irs.gov/pub/irs-pdf/p560.pdf See the worksheets in publicatino 560
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