Sole Prop - Late contribution

[Hojo]

I've talked myself in circles about this so I'm hoping for some guidance.  I'll throw out some rough numbers to hopefully help.  2017 Schedule C of $250,000 after 1/2 SE tax is taken out, owner only DB plan.

Assuming that no contribution is made, there is a minimum required contribution of $50,000 for 2017.  

They make a contribution of $60,000 on 10/12/2018 (late). The 5500 was filed 10/10/2018 showing an unpaid min of $50,000.

If I take the $60,000 out of comp, the new min required is only $30,000.

Do I refile the 2017 5500 and SB showing an unpaid min of $30,000?

When do I show the $60,000 contribution, the revised 2017 5500 and SB or on 2018 5500 and SB?

I feel like I have more questions, but I don't remember them right now.

 

[AndyH]

The $60,000 can't be on the 2017 SB because it was after 9/15/18, so it would be on the 2018 SB. 

Was the $60k claimed as a 2017 tax deduction, and if so is that proper?    I don't think so, but not sure about this - throw at an accountant.   An advisor raised this question with me recently because he heard or read it recently.    If yes I would think the comp is $190k.

Just one opinion.

[Larry Starr]

17 hours ago, Hojo said:

I've talked myself in circles about this so I'm hoping for some guidance.  I'll throw out some rough numbers to hopefully help.  2017 Schedule C of $250,000 after 1/2 SE tax is taken out, owner only DB plan.

Assuming that no contribution is made, there is a minimum required contribution of $50,000 for 2017.  

They make a contribution of $60,000 on 10/12/2018 (late). The 5500 was filed 10/10/2018 showing an unpaid min of $50,000.

If I take the $60,000 out of comp, the new min required is only $30,000.

Do I refile the 2017 5500 and SB showing an unpaid min of $30,000?

When do I show the $60,000 contribution, the revised 2017 5500 and SB or on 2018 5500 and SB?

I feel like I have more questions, but I don't remember them right now.

 

1) The $60k was not deducted for 2017 (it couldn't be because it was not timely contributed for a 2017 deduction), so it can't reduce his net SE income for 2017.  That means the required contribution (from your info above) will be $50,000 and the late payment penalty will be on $50k.

2) Yes, the unpaid minimum is $50k, and that is how you filed, so no changes will be made to the filings.

3) The $60k will be shown where it has to be shown, on the 2018 return.

Got more questions: bring 'em on!

Larry.

 

[Mike Preston]

Dig a bit deeper into the archives and I think you will find some support for the position that the minimum and maximum are calculated and based on the contribution made on or before the deductible deadline reducing the otherwise determined plan compensation.  Larry, why would a contribution made before the tax return due date not be deductible (if it is less than the amount determined as deductible for the tax year)?

[Larry Starr]

6 minutes ago, Mike Preston said:

Dig a bit deeper into the archives and I think you will find some support for the position that the minimum and maximum are calculated and based on the contribution made on or before the deductible deadline reducing the otherwise determined plan compensation.  Larry, why would a contribution made before the tax return due date not be deductible (if it is less than the amount determined as deductible for the tax year)?

One of us misunderstood the original posting I think.  Don't they show the contribution being made AFTER the extended tax deduction deadline?  I agree with your first sentence; isn't your second sentence a misstatement of the situation? What am I missing?

[Mike Preston]

The only reason contributions are made on 10/12 is because some clever advisor has told the client that the due date for contributions is the due date of the extended tax return.   Betcha betcha.

[Hojo]

So the CPA deducted the $60,000 because it was made 10/12 (prior to the extended tax deadline as Mike  Preston noted).

I agree the $60,000 doesn't show up on the SB, but what comp is used to calculate the minimum?

Larry - the contribution was made after the funding deadline but before the tax deadline.....does that change any of your answers.

I'll keep digging in archives but I was unlucky last night.

[Calavera]

If this is a BOY valuation, the actual 2017 net income should not impact the 2017 minimum calculations that were based on the expected 2017 net income.

[Hojo]

1 hour ago, Calavera said:

If this is a BOY valuation, the actual 2017 net income should not impact the 2017 minimum calculations that were based on the expected 2017 net income.

It's an EOY valuation.

[Larry Starr]

On 9/6/2019 at 5:44 PM, Hojo said:

So the CPA deducted the $60,000 because it was made 10/12 (prior to the extended tax deadline as Mike  Preston noted).

I agree the $60,000 doesn't show up on the SB, but what comp is used to calculate the minimum?

Larry - the contribution was made after the funding deadline but before the tax deadline.....does that change any of your answers.

I'll keep digging in archives but I was unlucky last night.

Maybe.  I'll relook at it.  I didn't bother to check the deadlines, I just read "late" and didn't realize it only applied to the 412 issue.  

[Larry Starr]

On 9/6/2019 at 5:04 PM, Mike Preston said:

The only reason contributions are made on 10/12 is because some clever advisor has told the client that the due date for contributions is the due date of the extended tax return.   Betcha betcha.

And it was me!  Yeah, I misread the deduction issue.

[Larry Starr]

On 9/5/2019 at 11:02 PM, Hojo said:

I've talked myself in circles about this so I'm hoping for some guidance.  I'll throw out some rough numbers to hopefully help.  2017 Schedule C of $250,000 after 1/2 SE tax is taken out, owner only DB plan.

Assuming that no contribution is made, there is a minimum required contribution of $50,000 for 2017.  

They make a contribution of $60,000 on 10/12/2018 (late). The 5500 was filed 10/10/2018 showing an unpaid min of $50,000.

If I take the $60,000 out of comp, the new min required is only $30,000.

Do I refile the 2017 5500 and SB showing an unpaid min of $30,000?

When do I show the $60,000 contribution, the revised 2017 5500 and SB or on 2018 5500 and SB?

I feel like I have more questions, but I don't remember them right now.

 

Let's rewind. The contribution was made by the extended tax deadline, and therefore it is deductible and the compensation is reduced and I feel comfortable using the smaller number of $30k as the amount subject to the missed minimum funding deadline.  The 5500 should show the unpaid minimum of only $30k so it should be re-filed. The instructions to the SB say to include the payments made by the 8 1/2 months (even though the deduction limit goes to 9 1/2 months).  Show the $60k contribution on the 2018  SB. Sorry for all the wrong answers the first time!

Did you already file the 5330 for the penalty?  I assume you did.  That likely needs amending also. 

[Hojo]

15 hours ago, Larry Starr said:

Let's rewind. The contribution was made by the extended tax deadline, and therefore it is deductible and the compensation is reduced and I feel comfortable using the smaller number of $30k as the amount subject to the missed minimum funding deadline.  The 5500 should show the unpaid minimum of only $30k so it should be re-filed. The instructions to the SB say to include the payments made by the 8 1/2 months (even though the deduction limit goes to 9 1/2 months).  Show the $60k contribution on the 2018  SB. Sorry for all the wrong answers the first time!

Did you already file the 5330 for the penalty?  I assume you did.  That likely needs amending also. 

No worries.  The deadlines were big here which brought my initial confusion (that plus lack of sleep).

The 5330 has not been filed yet so I don't have to amend but I'm sure there will be additional penalties once this all goes through.

Thanks for you insight.  It goes along with what I was thinking after processing this 400 times.

[AndyH]

It is not universally accepted that the deposit on 10/12/18 is deductible for 2017 (lots of discussion on the ACOPA board), so as I said I would defer to the accountant on that.   Otherwise I think we all now agree.