How to compute calculation for both SEP and MPPP

[jkharvey]

Client has two sole proprietorships. One, a medical practice, has a MPPP. The other, a hotel, has a SEP. The medical practice has Net Schedule C income in excess of $200,000. The motel, however, has a Net Schedule C loss. How is compensation computed for each of the plans, the SEP and MPPP? Does the client get a contribution from each plan based on comp of $160,000?

[Gary Lesser]

I'd like to know why all employees of the controlled group aren't being treated as if employed by a single employer (and certainly covered in the SEP, including the owner)? In the case of the MPPP are any employees of the non-adopting entity being disregarded, and why (under what theory)? Is the hotel and the motel one and the same entity? What is the percentage contribution rate specified in the MPPP?

If both entities are participating in the PLANS, then the loss reduces the EI for plan purposes. If not, the loss affects the 1/2 of social security tax deduction; and hence, earned income for plan purposes.

This is as far as I can go with this unusual fact pattern.

[jkharvey]

Actually, they are treated as a controlled group. For example, an employee earns $10,000 working at the hotel. She receives a SEP contribution and MPPP contribution. Both contributions are based on her salary from the hotel only.

My biggest question is how to compute the Earned Income for both MPPP and SEP purposes for the owner. Any suggestions?

[Gary Lesser]

Okay. If either plan is integrated you will probably need software, available on BenefitsLink at:

http://www.benefitslink.com/GSL/QPSEP_profile.html

to crunch the number unless you know what the percentage going to the non-owner(s)is. If you're trying to give owner a specified amount or percentage (eg 25%) then you don't know what the formula is that gets him/her there; hence you don't know what the percentage is for nonowners (and can't compute SE tax).

Once you know the nonowner amount/percentage, then you can figure owner's SE tax (if there are g/l from unrelated entities or any W-2 income that needs to be taken into account for SE). Then subtract 1/2 of it from owner's pre-plan income (along with the nonowner contribution), then use equivalency percentage (25 = 20 etc) to arrive at owner's contribution. To start, treat both plans as one (add formulas together, even if integrated). When you get ultra net EI, then apply it to the MP plan formula exactly as the formula reads, what's left goes into the SEP. It is easier with software (and is handles the same way, except that the math is instantaneous and you don't have to compute SE tax; it's done on the fly)!!