SEP contribution from personal account

[oceanlovin'ea]

I can't believe this! New client (one with the medical expenses on w-2) has a SEP payable on the balance sheet of 2009 tax return. I know he didn't write a check for it from business account since I have check register. I ask how they paid for it and they said personal account.

When someone goes into an investment office and wants to make a contribution to a SEP-IRA and hands the account person a personal check, shouldn't they know enough about SEP-IRA's to tell the person that it must come from a business account. This is the second time I have had this happen.

Now the 2009 return will have to be amended to make the contribution an adjustment to income on the 1040 and remove the deduction from the business return. I wonder if the previous preparer emphasized to them this had to come from the business account.

I hope these people don't think I am just giving them a hard time about different things on their return.

Linda, EA

[JohnH]

Could the personal check be considered a loan to the corporation to fund the SEP?

[BHoffman]

Linda - must it come from a corporate checking account? Just curious.

[Gary2]

Wouldn't that only matter if it were an S-corp? If it's an ordinary sole proprietorship, there is no other entity. Having separate accounts is an accounting convenience.

Or perhaps you already realize that, but are forgetting that the guy at the investment company taking the check may not know if whether it's an S-corp or other.

[oceanlovin'ea]

yes, it is an s corp.

Yes, it must come from the corporate account. The corporation is putting the money into the employees IRA account. I had this situation occur a couple of years ago. I would have to dig out my notes. I'll do it tomorrow.

But there was something that I found that said it had to be funded by the corporation. We had to have the investment company recharacterize the contributions.

An employee would have no basis in the SEP-IRA since the employer made the contributions and thus distributions would be taxable. If the employee puts the money in they would have a basis in the IRA.

I'll look in the morning.

Linda, EA

[BHoffman]

Linda - I'll take your word for it, please don't bother with looking through your notes as I realize how busy we all are right now.

[oceanlovin'ea]

I looked in TTB and found the answer. I have the 1040 book this year. I wanted to have separate books this year. But I think the reference pages would be the same. Page 13-15 under "Retirement and Employee Benefits". Then look at contributions section.

First sentence says "The employer, and not the employee, makes deductible contributions to the employees SEP-IRA. At the top of that section right under Simpliefied Employee Pension (SEP) it has 4 cross references.

When I had the situation before, I copied the information from the tax book and then gave the investment company the cross references. They changed the contributions made by the employee to individual contributions.

Linda, EA