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Old 03-05-2017, 02:53 PM
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Nondeductible SEP

Hi,

I have an S Corp that's a single employee business where I did not file a W2. I have not yet filed my 2016 return.

I made employer contributions to a SEP IRA for 2016, but now I'm told that those SEP IRA deductions are non-taxable with the way the business is set up (i think I would have had to go the W2 route to make those deductible). The tax accountant said to change to a W2 at this point would be very expensive.

So, now I have this SEP IRA that I'm worried about being double taxed on. I have a substantial amount of IRA money, so if I convert to a Roth, I think the pro-rata rule kills me.

I don't really need the money today or care about whether I get a tax deduction today or down the road, I just don't want to be double taxed on it.

Is there any easy way out of this?

Thanks in advance!



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Old 03-06-2017, 09:36 AM
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I have an S Corp that's a single employee business where I did not file a W2. I have not yet filed my 2016 return.=>In general, you'r S corp is required to supply W2 to employees no later than Jan 31 next year Failure to do so, or to file your employers' copies of the W-2 by the IRS deadline, could result in penalties; If you fail to file W-2s on time, the IRS can assess a penalty of $30 per W-2 if you file the correct form within 30 days of the due date. If you file between 30 days of the due date and August 1, the fine increases to $60 per form, with a maximum fine of $500, or $200 if you operate a small business. Failure to file forms by August 1 results in a fine of $100 per W-2, or $500 a year for small businesses and $1,500 annually for others. Small businesses are those with gross receipts of $5 million or less for the three most recent tax years. Also You as a responsible party for your company can be held personally liable for willful failure to withhold employee pay and payroll taxes or to pay withheld income taxes and other payroll taxes to federal and state agencies.Penalties are complicated; this list is brief and general. For more details on penalties, These penalties are for Form 941 taxes (withholding and FICA taxes) but may also apply to other similar forms. You need to contact an Enrolled Agent or A CPA doing taxes in your lo cal area for your fed/state returns.





The IRS deems that you must pay yourself "reasonable compensation." Of course, they don't tell you what reasonable is; so y ou as a Corp office , is required to be on payroll as a W-2 EE. Your earnings are subject to federal income, Social Security and Medicare taxes. If your corp is located in a state that has state income tax, you must also deduct state income tax withholding from your pay;however, you should not start paying yourself as of now aslongas your S crop takes losses without any revenues. You should establish a reasonable pay when the corp starts generating revenues. But once your corp pays you distributions then you need to pay yourself and issue you a W2.

I made employer contributions to a SEP IRA for 2016, but now I'm told that those SEP IRA deductions are non-taxable with the way the business is set up (i think I would have had to go the W2 route to make those deductible). =========>Contributions to a retirement plan can only be made from compensation form the S corp. Distributions you receive, if you received, as a shareholder of the S corp do not constitute earned income for retirement plan purposes; The contribution is based on your compensation on your w-2 ( say 25% of $20K(if your wage is %20K) is $5k). Even though you pay income tax on the profit on your tax return it is not considered compensation from working and that is the reason that social security taxes on not paid on this amount. the SEP contribution is deductible even though you are the only employee of the company. It is deducted on the 1120-S on line 17.



The tax accountant said to change to a W2 at this point would be very expensive.==========>as said above

So, now I have this SEP IRA that I'm worried about being double taxed on. I have a substantial amount of IRA money, so if I convert to a Roth, I think the pro-rata rule kills me. I don't really need the money today or care about whether I get a tax deduction today or down the road, I just don't want to be double taxed on it.Is there any easy way out of this?========>>>>>>>as said above



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Old 03-06-2017, 10:27 AM
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It says there's 1 reply and i even received an email about a reply, but I don't see where the reply is.

What am I missing?



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Old 03-06-2017, 10:31 AM
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I see your reply in printable format version only, weird.

I'm confused about your reply though. You say that you have an S Corp where you didn't file a W2, but then you say below that as a corporate officer, I must file an S Corp.

This is a single employee S Corp, do I need to file a W2 or I don't?

If I don't have to and don't, then my SEP IRA contributions are apparently non-deductible, so what's my best way to deal with that?



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