I copied some information from Pub 560 for SEP-IRAs as a reference and I have two questions following the information.
Pub 560
Setting Up a SEP
There are three basic steps in setting up a SEP.
1] You must execute a formal written agreement to provide benefits to all eligible employees.
2] You must give each eligible employee certain information about the SEP.
3] A SEP-IRA must be set up by or for each eligible employee.
Deduction Limit for Contributions for Participants
The most you can deduct for your contributions to your or your employee's SEP-IRA is the lesser of the following amounts.
1] Your contributions (including any excess contributions carryover).
2] 25% of the compensation (limited to $290,000 per participant) paid to the participants during 2021, from the business that has the plan, not to exceed $58,000 per participant.
Deduction Limit for Self-Employed Individuals
If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions.
~ The deduction for the deductible part of your self-employment tax.
~ The deduction for contributions to your own SEP-IRA.
The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 6. Then, figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 6.
Where To Deduct Contributions
Deduct the contributions you make for your common-law employees on your tax return. For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming.
Sole proprietors and partners deduct contributions for themselves on line 15 of Schedule 1 (Form 1040).
Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees
Question1: Is it a mandatory requirement that each SEP-IRA plan have a contribution rate defined in the plan?
Question2: I’d just like to verify, as Pub 560 states, that a sole proprietor’s contribution for themselves is taken on Schedule 1 Line 15 and not on Sch C.
Pub 560
Setting Up a SEP
There are three basic steps in setting up a SEP.
1] You must execute a formal written agreement to provide benefits to all eligible employees.
2] You must give each eligible employee certain information about the SEP.
3] A SEP-IRA must be set up by or for each eligible employee.
Deduction Limit for Contributions for Participants
The most you can deduct for your contributions to your or your employee's SEP-IRA is the lesser of the following amounts.
1] Your contributions (including any excess contributions carryover).
2] 25% of the compensation (limited to $290,000 per participant) paid to the participants during 2021, from the business that has the plan, not to exceed $58,000 per participant.
Deduction Limit for Self-Employed Individuals
If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions.
~ The deduction for the deductible part of your self-employment tax.
~ The deduction for contributions to your own SEP-IRA.
The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 6. Then, figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 6.
Where To Deduct Contributions
Deduct the contributions you make for your common-law employees on your tax return. For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming.
Sole proprietors and partners deduct contributions for themselves on line 15 of Schedule 1 (Form 1040).
Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees
Question1: Is it a mandatory requirement that each SEP-IRA plan have a contribution rate defined in the plan?
Question2: I’d just like to verify, as Pub 560 states, that a sole proprietor’s contribution for themselves is taken on Schedule 1 Line 15 and not on Sch C.
Comment