SEP IRA CONTRIBUTION AMOUNT S corp with salary and small profit.

[cipparulo12345]

Client is 100% owner of S-Corp. Has a salary of $100,000 per year form this S-Corp. Profit (Income) from S Corp after all deductions and salary is $6,000. How much can he contribute to SEP-IRA for 2019? He also had a small side job which he made $18,000 as an employee and was actually covered by a retirement plan there.

[Lion]

The S-corp can contribute to the SEP-IRAs of all its employees, including a shareholder/employee, an identical percentage as high as 25% up to $56,000 per employee, per the written employer plan. The company does not have to use the same percentage each year or make any contribution. The company deducts the contributions and does not include them in W-2 wages. See TTB Deluxe Edition tab 13 &/or Small Business Edition tab 28. Also, Form 5305-SEP, IRS Pub. 560, and IRC 408(k).

[Rapid Robert]

The S-corp can contribute to the SEP-IRAs of all its employees, including a shareholder/employee, an identical percentage as high as 25% up to $56,000 per employee

I think the key missing point here is 25% of what -- which would be the wage amount (the OP also mentioned the net profit of the corp for the 100% shareholder, which does not factor into the SEP IRA limit).

Suppose a $25K SEP-IRA contribution is made by the corp on behalf of the 100% shareholder -- now we have a $19K loss instead of a $6K profit - maybe not a problem, but should be examined to be sure. Might be an issue if not enough basis to cover the loss. Might be an issue with QBI deduction. Might be an issue if there is not enough cash flow in the corp to fund it. And so on.

[Lion]

Good catch, Robert. 25% of wages. Or a percentage no higher than 25%. And, a dollar amount no higher than $56,000. And, as Robert says, you will want to run the numbers. With QBI potential, you might not want a loss to carry over and reduce next year's QBI. Does he have the basis to absorb a loss? What is his goal? Save as much as possible for retirement? Get profit down to zero? A loss? Is depreciation in the picture, that could lower his profit or raise it to enable a larger SEP or larger QBI? Facts & circumstances.

[Burke]

is this one of those plans that has to be established prior to 1/1/20 to take a deduction?

[Lion]

Nope. That's one benefit of a SEP. You can open and fund it as late as the due date of the return, including extensions. So, if it takes a while to close out the year and then even longer to make enough money to fund the SEP, then a SEP is your plan. Traditional and Roth IRAs have a 15 April due date. A SIMPLE plan has to be opened by 1 October (I think) but can be funded by the return due date (again, I think), from the company standpoint; the employee payroll contributions need to be deposited within a certain number of days of each payroll. And, then there are Solo 401(k)s... The IRS has a whole publication on Retirement Plans for Small Business -- Pub 560.