Profit-Sharing Deductibility

[Bruce1]

Is there an issue with an S-Corp claiming the profit-sharing deduction and filing their return but not actually contributing the profit-sharing until after the tax return has been filed? Could this be applied to other areas, such as an individual claiming an IRA deduction for the previous year. Filing their taxes but not contributing the money until after their taxes are filed but before the tax deadline? 

[Peter Gulia]

If all conditions are met, a pension contribution can be deductible “[i]n the taxable year when paid[.]” Internal Revenue Code of 1986 (26 U.S.C.) § 404(a)(1)(A). Accrual is not enough.

“For purposes of [I.R.C. § 404(a)](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).” Internal Revenue Code of 1986 (26 U.S.C.) § 404(a)(6).

https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapD-partI-subpartA-sec404.htm.

Consider that a Form 1120-S must be “true, correct, and complete” when the corporation’s officer signs “[u]nder penalties of perjury” the return.

[CuseFan]

I have seen, and had clients in the past, that filed an extension, filed their return after the original due date and before the extended due date, claimed a deduction for their retirement plan contribution, and then used their tax refund toward their contribution deposit which was made by the extended tax return due date.

[ESOP Guy]

1 hour ago, CuseFan said:

I have seen, and had clients in the past, that filed an extension, filed their return after the original due date and before the extended due date, claimed a deduction for their retirement plan contribution, and then used their tax refund toward their contribution deposit which was made by the extended tax return due date.

Yup seen this also.   

 

And this meets the rules that Peter quotes in my mind.  If the return was filed after the original due date and there is an extension the contribution was made by the extended due date.  The extended due date of the return does't change just because the return was filed before the last day of the extension.