USA SEP IRA Contributions

[david salomon]

Hello
I live Miami, Florida.

I have a S-Corp and am the only share holder. I opened up a SEP IRA for my retirement. I pay myself via K1 instead of W2. I understand that businesses with W2 Employees are able to deduct 25% of their employees income when making contributions.

My question is how does this work if I am paid via K1 and not W2 income?

My accountant told me I can't do get any deductions for it. I am a little annoyed because I opened up the SEP IRA because she told me to do it.

Can anybody give me some guidance?

Thanks!

 

[smallbushelp]

First of all, as an S-Corporation shareholder, if you work for the company, you are expected by the IRS to be paying yourself reasonable compensation in return for the services that you provide to the company. This means W-2 wages. This compensation is to come before non-wage distributions are made to the shareholder-employee. If you're not paying yourself a wage or salary, in an audit situation, you could find yourself subject to years of back payroll taxes being assessed.

Second, your accountant is correct if you are only receiving distributions from your S Corp. But, if you begin paying yourself correctly from your S Corp, you will then be able to make contributions to your SEP IRA and deduct them as an expense to the company. You can consult IRS Publication 560 for more information or maybe find yourself another accountant who can get you steered in the right direction.