@rvhatcher wrote:
In my case, I am the only employee and have to pay myself a fair compensation, but my revenue is variable each year, sometimes $5k sometimes $10k, so I take W2 wages based on the average of the past five years. But, the amount over that, that flows to my 1040 IS actually earned by me because there is no one else.
But, in the Help section, at the bottom (see attachment) it says not to include income for partnerships for which you don't supply services. Implied here is that it would include partnerships for which I DO supply services, which is my case.
Your averaging method might be acceptable as an audit issue for determining whether or not you are paying yourself a fair wage, but unfortunately that is not enough for purposes of making IRA contributions.
Also, an S-corp is not a partnership, it is a corporation. They are different entities under the tax laws. If you were self-employed or part of a partnership, your net earnings would be compensation (and would also be subject to self-employment tax on schedule SE). But you are not self-employed or in a partnership, you are an employee of a corporation. The fact that the you are the owner and only employee of the corporation does not change the fact that as an employee, you are covered by the rules for employees, not the rules for sole proprietors or partners. (There are many important differences between being a schedule C sole proprietorship as a disregarded entity, and being an S-corp, and this is one of them.)
Potentially, you could contribute to a 401(k) as an employee (although special rules apply to the owners of the corporation who are also employees), and your contribution limit might be higher than the IRA limit, but you could still never contribute more than your actual compensation for the year.
