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| Simplified Employee Pension Plan |
A SEP-IRA is a Simplified Employee Pension plan.
This plan provides a significant source of income at
retirement by allowing employers to set aside money in retirement accounts both
for themselves and also for their employees.
A business of any size,
even self-employed, can establish a SEP-IRA.
For 2013, contributions make to an employee's SEP-IRA cannot
exceed the lesser of 25% of the employee's total compensation for the year or $51,000 and 20% of the net earnings from
self-employment. For example, if your
employee, Mary, earned $21,000 in 2013, the maximum
contribution that you can make to her SEP-IRA is $5,250 (25% x $21,000).
Generally speaking, you can deduct the contributions that you make each year to each employee's SEP-IRA on your tax return. If you are self-employed, you can also deduct the contributions that you make each year to your own SEP-IRA on your tax return. If you made SEP-IRA contributions that are more than the deduction limit, you can carry over and deduct the difference in later years. The carryover will be subject to the deduction limit for that year when combined with the contribution for the later year. However, if you made nondeductible (excess) contributions to a SEP-IRA, you may be subject to a 10% excise tax.
Where can you deduct the contributions that you make for your employees on your tax return? For example:
Generally speaking, you can deduct the contributions that you make each year to each employee's SEP-IRA on your tax return. If you are self-employed, you can also deduct the contributions that you make each year to your own SEP-IRA on your tax return. If you made SEP-IRA contributions that are more than the deduction limit, you can carry over and deduct the difference in later years. The carryover will be subject to the deduction limit for that year when combined with the contribution for the later year. However, if you made nondeductible (excess) contributions to a SEP-IRA, you may be subject to a 10% excise tax.
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| SEP -IRA for small business owner |
- Sole proprietors can deduct the contributions on Schedule C (Form 1040), Profit or Loss From Business or Schedule F (Form 1040), Profit or Loss From Farming;
- Partnerships can deduct the contributions on Form 1065, U.S. Return of Partnership Income; and
- Corporations can deduct the contributions on Form 1120, U.S. Corporation Income Tax Return, or Form 1120S, U.S. Income Tax Return for an S Corporation.
- Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. If you are a partner, contributions for yourself are shown on the Schedule K-1 that you receive from the partnership.
One thing needs to remember is that sole proprietors and partners can not deduct any contributions made to a SEP-IRA for themselves as a business expense. They can deduct only those contributions made to their employees as their business expenses.
If
you have any questions, please feel free to email us.
Your
comments and feedbacks are welcome.
Source: www.irs.gov.
Email: Excellent-tax@gmx.com
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