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We are 4 equal partners (LLC filing 1065). We do not pay ourselves wages. How do we report SEP-IRA contributions paid to ourselves? As business expense or K1 item?

The business is a single rental building - we collect the rent once a month and do not pay ourselves wages in the W2 sense. 

If the SEP contribution is not an expense to the business,  then what line would it be on in the 1065?

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dmertz
Level 15

We are 4 equal partners (LLC filing 1065). We do not pay ourselves wages. How do we report SEP-IRA contributions paid to ourselves? As business expense or K1 item?

[See the comments below this answer.  This rental income may not be income from self employment that is eligible to support a SEP-IRA contribution.  This answer applies to partnership income that is considered to be income from self-employment.]

The amount contributed to your SEP-IRA goes on Schedule K-1 (Form 1065) box 13 with code R.  Since this is reported as a self-employment retirement deduction on your personal tax return, it does not appear as a deduction (or anywhere other than box 13 of the K-1) on the partnership's tax return (Form 1065).

When you enter the box 13 code R amount onto TurboTax's K-1 entry form, TurboTax will ask you the breakdown of the amount.  Indicate that the entire amount was a SEP-IRA contribution.  TurboTax will verify that it is no more than the maximum permitted and will place the amount on Form 1040 line 28.

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5 Replies
dmertz
Level 15

We are 4 equal partners (LLC filing 1065). We do not pay ourselves wages. How do we report SEP-IRA contributions paid to ourselves? As business expense or K1 item?

[See the comments below this answer.  This rental income may not be income from self employment that is eligible to support a SEP-IRA contribution.  This answer applies to partnership income that is considered to be income from self-employment.]

The amount contributed to your SEP-IRA goes on Schedule K-1 (Form 1065) box 13 with code R.  Since this is reported as a self-employment retirement deduction on your personal tax return, it does not appear as a deduction (or anywhere other than box 13 of the K-1) on the partnership's tax return (Form 1065).

When you enter the box 13 code R amount onto TurboTax's K-1 entry form, TurboTax will ask you the breakdown of the amount.  Indicate that the entire amount was a SEP-IRA contribution.  TurboTax will verify that it is no more than the maximum permitted and will place the amount on Form 1040 line 28.

We are 4 equal partners (LLC filing 1065). We do not pay ourselves wages. How do we report SEP-IRA contributions paid to ourselves? As business expense or K1 item?

@dmertz   Is passive income from a rental property eligible for a SEP?
dmertz
Level 15

We are 4 equal partners (LLC filing 1065). We do not pay ourselves wages. How do we report SEP-IRA contributions paid to ourselves? As business expense or K1 item?

Good point.  I don't think so.  My answer applies to partnership income that is income from self-employment.  With nothing indicated in K-1 box 14 as self-employment income, TurboTax will calculate $0 as the maximum permitted SEP-IRA contribution.
dmertz
Level 15

We are 4 equal partners (LLC filing 1065). We do not pay ourselves wages. How do we report SEP-IRA contributions paid to ourselves? As business expense or K1 item?

For this rental income to be self-employment income, I believe that you would have to be considered to be a real estate professional [Edit: specifically, a real estate "dealer", see TaxGuyBill's comment below].  See IRS Pub 334, page 21, Real Estate Rents.

We are 4 equal partners (LLC filing 1065). We do not pay ourselves wages. How do we report SEP-IRA contributions paid to ourselves? As business expense or K1 item?

A Real Estate "Professional" still is not considered as self employment income.  You would need to be a Real Estate "Dealer" (sale of real estate), or provide significant services for the rental property for it to be self employment income (which the profit would be subject to self employment tax).

In other words, your real estate rental is not eligible for a SEP:
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p560/ch01.html#en_US_2014_publink10008810">https://www.irs.gov/publ...>
<a rel="nofollow" target="_blank" href="https://www.law.cornell.edu/uscode/text/26/401#c_2">https://www.law.cornell.edu/uscode/text/26/401#c...>
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