SEP IRA Question

[CUSO]

Hello, I have a client amending his 1120-S because he forgot to account for a SEP IRA contribution that he made during the year.  On ProConnect, do I enter the SEP IRA contribution on the 1120 S under: Ordinary Income -> Deductions -> Pensions, profit-sharing plans?

Do I also need to account for this in any other locations for his individual tax return?

Thank you!

[sjrcpa]

1. Yes

2. No

[joshuabarksatlcs]

@sjrcpa I'm still learning.

But let me put a 5-paragraph asterisk  on 

2.  No.

SEP IRA would imply wages were paid.

Therefore, a W-2 was (or W-2's were) issued to the employee(s).

On the W-2(s), was the "Retirement Plan" box checked?

If NOT, it'd be an error.

If the error(s) existed, did the employee(s) make IRA contribution(s)?

If the employee(s) did, did it go beyond the income limitation?

** Answer asterisked in case Bob was behind the (trick) question.  

[sjrcpa]

Good points @joshuabarksatlcs 

[CUSO]

Ok so your comments perhaps changes a few things things.  The owner of the S-Corp is also the only employee and he did not set up any payroll (though he should have).  With that said, can he still take the deduction for the SEP IRA contribution?

[IRonMaN · Accepted solution]

Nope

[Accountant-Man]

No S corp wages for the employee/owner, no SEP-IRA.

[PATAX]

If no owner/employee s corp wages, no other employees/wages, and sep ira contribution apparently made, do you think a red flag may be up (unless it is small entity with limited activity?)???  just my opinion.

[CUSO]

Thank you!

[qbteachmt]

SEP IRA for S Corp is employer-only contribution. It can't be deducted from salary as employee contribution. SEP IRA cannot be paid against K-1, either. An SEP plan is established by the employer.

[qbteachmt]

"The owner of the S-Corp is also the only employee and he did not set up any payroll (though he should have)."

Is this going to be addressed?

Do you need to try for a corrective distribution until this is straightened out?

[George4Tacks]

@CUSO It does appear your client is subject to a 6% penalty for excess contributions. 

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps should get you pointed in the right direction to help them possibly amend their 1040 and work on correcting these contributions. 

[TaxGuyBill]

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@CUSO wrote:

 he did not set up any payroll (though he should have). 

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Did he not set up payroll?  Or did he not take compensation?  They can be very different.

I'm rather unpopular with my opinion, but ...

If he took money out of the corporation for personal use, it is wages and/or distributions.  Unless he specifically tells you all of that money is non-wage distributions (and the fact there is a SEP indicates that is NOT the case), he DID take wages/compensation, but neglected to file payroll forms.  That means the payroll forms should be filed now.

[joshuabarksatlcs]

@TaxGuyBill 

Unique insightfulness could appear to be unpopular.

[CUSO]

Yes, he is going to need to pull out the SEP contribution and have it coded as a return of excess contributions.  He would normally also need to pull out any gains earned, however I doubt he will have gains in this market! 

[JRC]

There seems to be a communication problem between you and your client.. I complained to one of my clients for their lack of communication with me regarding tax and accounting issues and did threaten to fire them over it. Having to do with a SEP contribution he made on his own prior to Setting it up within the Corporation.

Payroll is a must for any S-corporation shareholder.

[CUSO]

This is a new client, all of this work was done by a previous firm, I am just trying to get the client back on track now. 

[CUSO]

The client unfortunately did not set up any payroll.

[TaxGuyBill]

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@CUSO wrote:

The client unfortunately did not set up any payroll.

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As said before, not setting up payroll and not taking "compensation" can be two different things.  Just because payroll forms were not file does not necessarily mean he did not take "compensation" (payment for the work he performed).