SEP contribution for Partnership

[Hamacher]

Please clear up a debate we are having in my office. Does the SEP contribution go through the Parnterships books and if so, where does it appear on K1... or does it simply just go on the individuals return with nothing going through K1?

Thanks in advance.

[Bees Knees]

IRS Pub 560, page 7 says the following:

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), Profit or Loss From
Business, or Schedule F (Form 1040), Profit or
Loss From Farming, partnerships deduct them
on Form 1065, U.S. Return of Partnership In-
come, and corporations deduct them on Form
1120, U.S. Corporation Income Tax Return,
Form 1120-A, U.S. Corporation Short-Form In-
come Tax Return, or Form 1120S, U.S. Income
Tax Return for an S Corporation.
Sole proprietors and partners deduct contri-
butions for themselves on line 28 of Form 1040,
U.S. Individual Income Tax Return. (If you are a
partner, contributions for yourself are shown on
the Schedule K-1 (Form 1065), Partner’s Share
of Income, Deductions, Credits, etc., you get
from the partnership.)

The instructions for Schedule K-1, Form 1065, line 13, code Q say:

Code Q. Pensions and IRAs. Payments
Made on your behalf to an IRA, qualified
plan, simplified employee pension (SEP), or
a SIMPLE IRA plan. See Form 1040
instructions for line 25 to figure your IRA
deduction. Enter payments made to a
qualified plan, SEP, or SIMPLE IRA plan on
Form 1040, line 32. If the payments to a
qualified plan were to a defined benefit plan,
the partnership should give you a statement
showing the amount of the benefit accrued
for the current tax year.

In other words, the partner is treated as an employee of the partnership, thus, the partnership contributes the money to the SEP and separately reports the contribution on the partner’s K-1, thus allowing the partner to take the deduction on his or her 1040.

[Hamacher]

SEP contribution made in following year

Thanks BEES - If the contribution is made in the following year but is intended to be used in the previous year... do you simply accrue the payment?

Thanks in advance.

[Bees Knees]

Yes, even if the business is under the cash method. The ability to deduct SEP contributions made by the due date including extensions is a tax law thing, not an accounting issue. So debit retirement contribution expense and credit retirement contributions payable as an end of year adjustment. Then debit retirement contributions payable and credit cash when the contribution is actually made in the following year.