Deducting More than 415 Limit on partner's 1040

Here is my situation:

- Plan sponsor is a partnership with a cross-tested profit sharing plan

- We received the K-1s for 2020, which only had Guaranteed Payments subject to Self-Employment Taxes in Box 14A.

- For one of the partners, he was limited (to pass testing) to a profit sharing of $20,000 (Box 14A was only a little over $100K).

- We just found out (after the September 15th deadline), that the K-1s were in error, and he should have had over $300,000 in Box 14A. They are filing an amended 1065

He would like to put in the full $57,000 for 2020 (an additional $37,000 contribution). 

He can still put in the additional $37,000 for 2020 since it is still within the time frame for a 2020 annual addition, but he cannot deduct this on his 2020 1040, but could on his 2021 1040. However, the next question is if he wants to do the maximum in 2021 ($58,000), can he deduct the full $95,000 ($37,000 for 2020 plus $58,000 for 2021) on his 2021 Form 1040, or would that be limited to $58,000 only?

I tend to believe the answer is yes, he would get the full deduction in 2021 - but I am struggling to find support for that position. He isn't violating the 415 limits or the maximum tax deductible contribution for the plan.

Thoughts/support for that position?

For 2021 Partnership deduction limit is 25% of eligible pay for partcipants. As long as they are under that in the aggregate you should be able to do what you are describing.

However as I understand it, since the deduction for the partner is taken on his personal return you might still be able to deduct it for 2020, you should discuss with the accountant.

31 minutes ago, Lou S. said:

For 2021 Partnership deduction limit is 25% of eligible pay for partcipants. As long as they are under that in the aggregate you should be able to do what you are describing.

However as I understand it, since the deduction for the partner is taken on his personal return you might still be able to deduct it for 2020, you should discuss with the accountant.

Uh.... he is the accountant.

We aren't the CPA for this client's personal return or partnership - we just do the retirement plan. 

That said - with the 9/15 deadline for partnerships to make a contribution, I don't believe we can deduct it on the 2020 tax return just because the partner has until 10/15. 

Yes - the overall contribution would still be under 25% of pay, even with this additional funding.

You should also verify that testing still passes and that gateway is met with the larger contribution. Looks like the result is going to be a higher % pay than the initial calculation when comp was $100k 

Yes, of course. It should pass, maybe he wouldn't get the full contribution, but it should come close. Didn't want to run through the process of re-calculating everything and re-doing the testing if the answer was going to end up being a no.

Why wouldn't 404a6 apply?