The S corp gets the deduction by including the SEP contribution on Form 1120S line 17, Pension, profit-sharing, etc., plans. It's not reportable anywhere on the owner's W-2.
For a CASH basis S-Corp, are SEP contributions deducted from the 1120S Tax Return in the year the contribution is made, or in the year the contribution is for?
For Example, an employee's W2 shows $20,000 wages for 2019. The SEP contribution of $5,000 or 25% is not made until Feb 2020 after the year ended. Is the $5,000 deducted on the 2019 Tax Return or on the 2020 tax return?
dmertz,
Does the K1 show the SEP contribution? Thanks.
As a shareholder in an S corporation, you are not self employed. Social Security and Medicare taxes are withheld from your pay reported on your W-2. Your SEP-IRA contribution is also not reportable on your personal tax return because your SEP IRA contribution is made by the S corporation based on your W-2-reported income and deducted as an expense on the S corporation's income tax return.
There is no reason for these to appear on your Schedule K-1 (Form 1120S). Your Social Security and Medicare withholding are reported on your W-2. Your SEP-IRA contribution might also be shown on your W-2, but only for your information, not for reporting anywhere on your personal tax return.
The IRA custodian should mail a form 5498 showing the contribution ... these usually show up in May of the following year.
This is also my question :
For a CASH basis S-Corp, are SEP contributions deducted from the 1120S Tax Return in the year the contribution is made, or in the year the contribution is for?
For Example, an employee's W2 shows $20,000 wages for 2019. The SEP contribution of $5,000 or 25% is not made until Feb 2020 after the year ended. Is the $5,000 deducted on the 2019 Tax Return or on the 2020 tax return?
For a cash basis corporation deductions are always taken in the year that the cash is actually spent. So in your example the SEP contribution is deducted in 2020.
That would be incorrect. Corporations are allowed SEP Contribution deduction for the year calculated (2019) or year cash actually contributed (2020), as long as it was contributed by the due date of tax return including extensions. See IRC Section 404(a)(6) "Time when contributions deemed made".
Also see IRS Issue Snapshot and "Timing of Deductible" Examples here: https://www.irs.gov/retirement-plans/issue-snapshot-deductibility-of-employer-contributions-to-a-401k-plan-made-after-the-end-of-the-tax-year
To answer the above question, the deduction would be allowed on the 2019 Corporation tax return.