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Need Some Deductions for 2012?
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Updated for 2012
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What is Compensation Under a SEP Plan?
Compensation for an employee is normally the employee's salary, commissions, bonuses, and other income earned on the job.
However, compensation for employees generally does not include the employer's contribution to the employee's SEP-IRA.
In other words, your contributions as the employer to an employee's SEP-IRA are not added of the employee's gross pay.
Self-Employed Person's Compensation
For SEP (and qualified) plans, a self-employed person's compensation is net earnings from self-employment, which equals:
- Gross income from your trade or business, minus
- Allowable business deductions.
Gross Income:
Only gross income where personal services rendered were a material income-producing factor are included in determining net earnings from self-employment; not passive income earned merely as an investor.
Allowable business deductions:
In addition to ordinary and necessary expenses, allowable business deductions also includes:
- Contributions to SEP and qualified plans for common-law employees, and
- The deduction for one-half of your self-employment tax (deducted on Form 1040, line 27).
Reminder: Contributions to your own SEP-IRA are not deducted from income from your trade or business on Schedule C (of F). Your deduction is entered on Form 1040, line 28.
Next:
SEP Plans: Excess Contributions to a SEP; Excise Tax on Excess Contributions; Carryover of Nondeductible Contributions; Form W-2 Reporting
Related Links
- Why Have a Retirement Plan?
- Build Wealth
- Slash Taxes
- Government Incentives
- How Sole Proprietors and Partners are Classified for Retirement Plan Purposes
- Types of Retirement Plans
- Payroll Deduction IRAs
- Choosing a Financial Institution.
- What is a SEP?
- SEP-IRA Contributions
- Vesting in a SEP-IRA
- Deducting SEP-IRA Contributions
- Reporting Requirements for SEP-Plans
- Timing Deductions
- Who Contributes to SEP-IRA Accounts?
- Can Property be Contributed to a SEP-IRA?
- Vesting in a SEP-IRA
- No Strings Attached to SEP Contributions
- Time Limit for SEP Contributions
- No Contribution Requirement for SEP-IRAs
- How Contributions Are Made to a SEP-IRA
- SEP-IRA Contribution Limits
- Deduction Limits for Contributions to SEP-IRAs
- Where to Deduct SEP Contributions
- Due Date for Making Deductible Contributions
- Deductible SEP-IRA Contributions
- Special Computation for Self-Employed Persons
- Three Steps to Setting Up a SEP Plan
- Eligible Employees
- Excludible Employees
- 18 Things to Know About SEP Plans
- Credit for Small Employer Pension Plan Startup Costs
- Credit for Qualified Retirement Savings Contributions
- SARSP Plans
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