Pass Through income from SCorp with SEP-IRA amount to deduct

[cstalker]

I have a situation requesting an answer, where I have income recorded from Pass Through SCorp of $240K, this brings my total income to $900K, I have contributed to SEP-IRA potentially lowering the Pass Through income by 20% of $240K but I cannot find in TurboTax where to claim that.  I use to do this on Keogh, SEP and SIMPLE Contribution worksheet but there is no Pass Through income listed there to put my SEP-IRA against.  I also read that if your joint income is over ~630K you do not qualify for 20% deduction and my SCorp category is consulting services.  How and can I claim the SEP-IRA deduction against my Pas Through SCorp income?

[ThomasM125]

The SEP-IRA contribution should be reported on the S corporation tax return, Page 1 on line 17 Pension, profit sharing, etc... plans. As such it will be subtracted from your S corporation income and reflected as a reduction of your income reported on the S corporation schedule K-1. It is allowed up to 25% of your wage compensation from the corporation.

[cstalker]

This is not paid to the W-2 employee, this is SEP-IRA contributed by the owner of the company for the income that is pass through to that person.  Does that change how it is deducted?

[cstalker]

here is one reference I could find on the internet and it has a link to IRS docs

What Is the Pass-Through Tax Deduction? | The Motley Fool

[AliciaP1]

A SEP IRA is funded by employer (business) only contributions and is only a deduction to the business.  It does not create a taxable event until the IRA is distributed to its owners.

The information @ThomasM125 posted is correct and the only way to properly report the contribution from an S-Corp to a SEP IRA.  See SEP Plan FAQs for more information.

@cstalker 

[cstalker]

I am trying to understand the details around your answer, can you provide some more details please.  I am also trying to lookup the link to the other reference posting but I cannot directly find the topic (newbee to this forum) if you can provide a little assistance on this topic clarification.

[AliciaP1]

Yes, I can give you some background!  You also need to remember if you are providing services to your S-Corp you need to be paying yourself a reasonable compensation amount and your deduction should be limited by your W-2 income from the business.

Per the IRS:

Simplified Employee Pension (SEP) plans can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25 percent of each employee's pay.

• Available to any size business
• Easily established by adopting Form 5305-SEPPDF, a SEP prototype or an individually designed plan document
  • If Form 5305-SEP is used, cannot have any other retirement plan (except another SEP)
• No filing requirement for the employer
• Only the employer contributes - (This is your S-Corp even if you do not pull a salary from the business)
  • To traditional IRAs (SEP-IRAs) set up for each eligible employee
  • Employee is always 100% vested in (or, has ownership of) all SEP-IRA money

Since you are receiving a Schedule K-1 from your S-Corp, you will not see the contribution on your K-1 nor will you enter any amount on your individual tax returns.  Below is the information you need to calculate the amount the business can contribute to the SEP IRA.

Per the FAQ link I provided:

How much can I contribute to my SEP?

The contributions you make to each employee's SEP-IRA each year cannot exceed the lesser of:

1. 25% of compensation, or
2. $66,000 for 2023 ($61,000 for 2022; $58,000 for 2021; $57,000 for 2020 and subject to annual cost-of-living adjustments for later years).

These limits apply to contributions you make for your employees to all defined contribution plans, which includes SEPs. Compensation up to $330,000 in 2023 ($305,000 in 2022; $290,000 in 2021; $285,000 in 2020 and subject to cost-of-living adjustments for later years) of an employee's compensation may be considered. If you're self-employed, use a special calculation to determine contributions for yourself.

Contributions must be made in cash; you cannot contribute property.

If you've contributed more than the annual limits to your SEP plan, find out how to correct this mistake.

How much can I contribute if I'm self-employed?

The same limits on contributions made to employees' SEP-IRAs also apply to contributions if you are self-employed. However, special rules apply when figuring the maximum deductible contribution. See Publication 560 for details on determining the contribution amount.

@cstalker 

[cstalker]

this is helping but there still is situations that I need some help with.  So in relation to this section:

How much can I contribute to my SEP?

The contributions you make to each employee's SEP-IRA each year cannot exceed the lesser of:

25% of compensation, $61,000 for 2022 (this tax year), how much can I contribute and where do I claim (which entry in turbox tax) it if:

25% of compensation x W-2 for my employment from the SCorp, so example 

$111k x 25% = $27,250, so I could put that in for 2022? where do I claim it?  

also, I have put away $20 from another W-2 income where they have their own plan so these two values would be under the $61K max? 

there is no pass-though deduction as discussed in this link: 

What Is the Pass-Through Tax Deduction? | The Motley Fool

this has nothing to do with the pass through income to me from my SCorp to me personally?

[AliciaP1]

The S-corp would contribute the $27,250 and it would be a "Benefits" expense to the S-Corp which would reduce the S-Corp's income and thus reduce your share of the income on your Schedule K-1.  Any SEP contribution does not get entered on your personal return anywhere.

Yes, you need to consider the additional $20 from the other plan as part of your annual maximum because these maximum contributions are by the person, not the plan.  So, the combined total of $27,270 is well under the $61,000 maximum so you will be all good!

The article you are referencing is referring to the Section 199A Qualified Business Income deduction and has nothing to do with any retirement contributions either.  If your Schedule K-1 from your S-Corp has a code V reference in box 20, you will also have a Statement A (or other identified statement referencing QBI or Section 199A) with your Schedule K-1 that TurboTax will prompt you to enter the pertinent information through the K-1 entry interview.

@cstalker 

[cstalker]

what about if my joint income is over $600K, would this mean I would not be able to take any deductions:

https://quickbooks.intuit.com/r/taxes/8-details-you-need-to-know-about-for-the-199a-deduction/

What is the Section 199A deduction?

Section 199A is a qualified business income (QBI) deduction. With this deduction, selecting types of domestic businesses can deduct roughly 20% of their QBI, along with 20% of their publicly traded partnership income (PTP) and real estate investment trust (REIT) income. The deduction is limited to 20% of taxable income, less net capital gains. Net capital gains refers to (capital gains less capital losses).

But, this deduction isn’t for everyone. There are income limitations as well as business limitations. First off, you need to file a joint return with no more than $315,000 in taxable income or a single return with a cap of $157,500 in taxable income for the tax year. According to the IRS provision for Section 199A, the deduction is gradually phased out for joint return taxable income between $315,000 and $415,000. For other filers, the deduction is phased out for returns with taxable income between $157,500 and $207,500.

Businesses must also be domestic, meaning located within and taxed by the United States. And, businesses must be a sole proprietorship, partnership, S corporation, trust or estate to qualify.

and I am a consulting type S Corp which does not, so do I NOT qualify for any deduction?

[RobertB4444]

You are correct.  You are income limited so you would not get a QBI deduction.

@cstalker