SEP Calculation Worksheet

[cpasue]

I have a client who is a partner in an LLC for which he receives guaranteed payments in addition to his share of the ordinary income.  He also owns a separate LLC for which he is sole proprietor.  He has set up a SEP for the sole proprietorship for which he would like to contribute the maximum amount for 2020. ProSeries Basic is calculating the maximum SEP based on both the net income from the sole proprietorship and also on his guaranteed payments from the partnership.

I know that he cannot calculate his maximum SEP payment based on his guaranteed payment income (as a separate plan would need to be set up within the partnership that would include the partners and all employees, which has not been done).  Other than overriding the amounts on the SEP Contribution Worksheet, which requires overriding a number of the entries, is there a way to let the program know that the guaranteed payments should not be included in this calculation?

[Just-Lisa-Now-]

do the calculation yourself then just enter the figure in the SEP contribution box, dont use the Compute Max checkbox.

[cpasue]

Thanks for the quick answer.  You're right - I can and have done that myself but was hoping there was a magic box to check somewhere that would allow the program to make the correct max calculation, excluding the guaranteed payments.  I have had to revise the calculations a few times as the client solidifies his information, so need to manually change this each time this happens.

[Sunshine]

I use the Pro Series Professional, but assume the programs are similar.  If you have filled out the SEP 4.a. box with the amount from one LLC, but it still comes up with the two added together, you can go on down to the Adjustment part and fix it there.  If you need more help, use the HELP at the top of the page and get the Instructions for this Worksheet.  It states that it only does one business at a time so can't understand why they are adding together.  Override or Adjust.  Use the HELP.

[Taxes-by-Rocky]

If you haven't already, consider the rules for "entities under common control" under IRC Section 414(c) as you may inadvertently be setting up a plan for the other partnership.

[cpasue · Accepted solution]

Thanks so much.  It does seem to calculate correctly when entering the guaranteed payments as a negative adjustment to net earnings in Part II.  I don't see where it states that it only does one business at a time, however. The ProSeries Basic instructions state that the computation includes the total of Schedule C & Schedule F net income and Schedule K-1 self employment earnings (which would be applicable and properly included if the SEP plan was set up within the partnership).  Where taking the partnership guaranteed payment amount out of the equation as an adjustment as you suggested works, I will just go ahead and use that method.

Thanks again!

[cpasue]

Thanks for the reminder.  Luckily he only owns 5% of the profit/capital of the partnership so this provision would not apply.