SEP - S-corp

[Hoosier]

Client is a cash-basis s-corp with one shareholder/employee. Filing of 2016 form 1120S has been extended. Business profits are $20,000 and the shareholder's W2 is $36,000 in box 1. Shareholder wants the s-corp to make a contribution to his SEP. It looks like the calculation is $9,000 ($36,000 x 25% max). Since the s-corp has a valid extension, would this $9,000 SEP contribution be deductible on Line 17 of the 2016 form 1120-S for this cash-basis taxpayer?

[New York Enrolled Agent]

Since the s-corp has a valid extension, would this $9,000 SEP contribution be deductible on Line 17 of the 2016 form 1120-S for this cash-basis taxpayer?

Assuming you timely file the return and make the contribution on or before the extended due date, the answer is yes.

There are two revenue rulings for you to read. Rev Ruling 66-144 address the issue for accrual basis taxpayers.

That ruling was amplified by Rev Ruling 84-18. You need to read that ruling carefully as it primarily deals with IRAs but you will see as a result of ERISA, the holdings of RR 66-144 are extended to cash basis taxpayers.

[DaveinTexas]

Practical

Assuming you timely file the return and make the contribution on or before the extended due date, the answer is yes.

There are two revenue rulings for you to read. Rev Ruling 66-144 address the issue for accrual basis taxpayers.

That ruling was amplified by Rev Ruling 84-18. You need to read that ruling carefully as it primarily deals with IRAs but you will see as a result of ERISA, the holdings of RR 66-144 are extended to cash basis taxpayers.

Just to add to NYEA's great response, here's the bookkeeping entry if you also fiddle with the client's QB file:

Make a journal entry dated in 2016. Debit the SEP Contribution expense and credit a current liability account. When the payment is made in 2014, reduce the liability.