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SEP IRA Question

CUSO
Level 3

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!

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1 Solution

Accepted Solutions
IRonMaN
Level 15

Nope


Slava Ukraini!

View solution in original post

18 Comments 18
sjrcpa
Level 15

1. Yes

2. No


Ex-AllStar
joshuabarksatlcs
Level 10

@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.  


I come here for kudos and IRonMaN's jokes.
sjrcpa
Level 15

Good points @joshuabarksatlcs 


Ex-AllStar
CUSO
Level 3

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?

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IRonMaN
Level 15

Nope


Slava Ukraini!
Accountant-Man
Level 12

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

** I'm still a champion... of the world! Even without The Lounge.
PATAX
Level 15

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
Level 3

Thank you!

qbteachmt
Level 15

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.

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"Level Up" is a gaming function, not a real life function.
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qbteachmt
Level 15

"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?

*******************************
"Level Up" is a gaming function, not a real life function.
George4Tacks
Level 15

@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. 


Here's wishing you many Happy Returns
TaxGuyBill
Level 15

@CUSO wrote:

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


 

 

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
Level 10

@TaxGuyBill 

Unique insightfulness could appear to be unpopular.

 


I come here for kudos and IRonMaN's jokes.
CUSO
Level 3

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! 

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JRC
Level 8

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
Level 3

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
Level 3

The client unfortunately did not set up any payroll.

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TaxGuyBill
Level 15

@CUSO wrote:

The client unfortunately did not set up any payroll.


 

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).