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california0905
Returning Member

Husband and Wife LLC in California Set up SEP IRA

1) Both husband and wife had full time jobs. Husband maxed out employer's 401K (19K) and 403b (19k). Wife maxed out employer's 401k (19k). 

2) Husband and wife joined ran a side business, a LLC in a community property state (California). The LLC had no other employees. Husband and wife didn't take any wages from the LLC. 

3) The LLC's treated as disregard entity in term of federal tax return. It was reported on one schedule C. Husband's name was list as name of proprietor on the schedule C.  

 

Question: can husband and wife set up separate SEP IRA  accounts to the following limit?

 

  1. 25% of compensation, or
  2. $57,000 for 2020 ($56,000 for 2019 )
2 Replies
Critter-3
Level 15

Husband and Wife LLC in California Set up SEP IRA

1) Both husband and wife had full time jobs. Husband maxed out employer's 401K (19K) and 403b (19k). Wife maxed out employer's 401k (19k).    Immaterial for SEP-IRA contribution limitations.

 

 

2) Husband and wife joined ran a side business, a LLC in a community property state (California). The LLC had no other employees. Husband and wife didn't take any wages from the LLC.    If you have a multi-member LLC then you will either file a partnership return  OR  2 separate Sch C forms since you live in CA.

 

 

3) The LLC's treated as disregard entity in term of federal tax return. It was reported on one schedule C. Husband's name was list as name of proprietor on the schedule C.  This is where you messed up ... as already mentioned you have to file either as a Partnership or on SEPARATE Sch Cs.

dmertz
Level 15

Husband and Wife LLC in California Set up SEP IRA

To elaborate on what Critter-3 said, if the LLC has not elected to be treated as a corporation (S corp or C corp), in a community property state the spouses have the option for the LLC to be treated either as a partnership or a disregarded entity:

 

https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-compan...

 

With the LLC is being treated as a disregarded entity, two Schedules C should have been filed, one for each spouse, each reporting the particular spouse's proportionate share of income and expenses.

 

https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorpo...

 

By filing only a single Schedule C in your husband's name, you have indicated that the LLC is owned entirely by your husband alone.

 

If the LLC establishes a SEP plan and makes contributions for a particular year, a SEP contribution for each owner must be made and the contributions must be the same percentage of net earnings (net profit minus the deductible portion of self-employment taxes) for each owner, assuming that neither is limited by the overall contribution limit.  For a self-employed individual, the maximum percentage is 20% (derived by a special calculation from the 25% base rate that would apply to W-2 employees if there were any).

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