Per Diem Rates from the U.S. General Services Administration

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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").

Per Diem Rates

Figuring a Self-Employed Person's Deductible Contributions

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A self-employed person may make before-tax contributions to a 401(k) plan and may make matching or non-elective contributions to an employee's retirement plan. The method of determining the contribution amount for a self-employed person is a little more complex than determining an employee's contribution.

Determining an employee's contribution is straight forward:

• Simple multiply the employee's compensation (i.e. gross wages) by the contribution rate stated in the plan.
  • For example, if an employee's gross wages are $20,000 and the plan rate is 10%, the contribution is $2,000.

Special Computation for Self-Employed Persons (a 3-step process)

1. Figure your net earnings from self-employment
2. Figure your reduced contribution rate
3. Multiply your net earnings from self-employment in step 1 by your reduced contribution rate to determine your deductible contribution

STEP 1:

Net earnings from self-employment equals:

• Net profit on Schedule C, line 31 (or F), reduced by one-half of your self-employment tax liability.

STEP 2:

Figuring your reduced contribution rate:

• Your compensation, for purposes of determining your own deductible contribution, takes into account:
  • The deduction for one-half of your self-employment tax and
  • The deduction for contributions on your behalf to the plan, which is unknown when you start the computation.
    • Since your deduction for your own contributions and your net earnings depend on each, you determine your deductible contributions indirectly by reducing the rate stated in the plan document. (You'll see how to do this in the example below.)
    • Keep in mind, the contribution rate stated in the plan document applies to employees only and NOT YOU as a self-employed person.

STEP 3:

Multiply net earnings from self-employment by your reduced contribution rate to determine your deductible contribution.

Figuring Your Deductible Contribution if You're Self-Employed:

Example:

Figuring the contribution deduction for a self-employed person.

Here are the facts:

• The plan rate is 10% (.10).
• Your a Schedule C filer.
• Schedule C, line 31 shows a net profit of $40,000.
• Your deduction for one-half of your self-employment tax liability is $2,826

STEP 1: Figure your net earnings from self-employment:

Your net earnings from self-employment is $37,174, figured as follows:

• $40,000 (Schedule C, net profit) minus $2,826 (one-half of self-employment tax) = $37,174

STEP 2: Figure your reduced contribution rate.

Your reduced contribution rate is .090909, figured as follows:

• Use the plan rate of 10% as the numerator (.10 in the example)
• Add 1 to the plan rate to determine the denominator:
  • 1 + .10 = 1.10
• Divide the plan rate of 10% by: 1 plus the plan rate to find your reduced rate:
  • .10 divided by 1.10 = .090909

STEP 3: Multiply net earnings from self-employment (STEP 1) by your reduced contribution rate (STEP 2) to determine your deductible contribution.

Your deductible contribution is $3,379, figures as follows:

• $37,174 (STEP 1) x .090909 (STEP 2) = $3,379

The maximum deductible percentage for contributions (other than elective deferrals) to your own profit-sharing Keogh, money-purchase Keogh, or SEP is 20% and for your employees, 25%.

Publication 560 table and worksheets:

You can also use the Table and Worksheets for the Self-Employed to figure your deductible contribution.