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Hi fellow tax-toilers,

we are doing our own taxes for the first time since we've had Keough accounts. We are both self employed & unincorporated.

"Deduction Worksheet for Self-Employed"

The example above the 'worksheet' says: "You are sole proprietor and have employees".

My question is: does anyone know if this formula still applies to me if I am self employed, the sole proprietor of my business AND I am the ONLY employee? (bolded just so you can find the point of this long msg)

The formula:Step 1: enter your rate from the 'Rate Table' ....(since my plan contribution amt is 20% of net earnings, my 'rate' is .166667.)

Step 2: enter your net earnings (net profit) from line 31, sched. C, form 1040. (I did this)

Step 3: Enter your deduction for self-employment tax from line 27, form 1040. (I did this)

Step 4: Subtract step three from step 2 and enter result. (Did it)

Step 5: Multiply step 4 by step 1 = (did it)

Step 6: multiply \$160,000. by your plan contribution rate. enter the result, but not more than \$30,000.

Step 7: Enter the smaller of step 5 or step 6. This is your MAXIMUM DEDUCTIBLE CONTRIBUTION. Enter deduction on line 20, Form 1040.

Thanks in advance for any assistance on this question!
Trisha

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See if this helps. Just take your net income from self-employment, subtract your deduction for 1/2 of the Self-employment tax, and multiply that by 20%.

Suppose you had \$50,000 in net income, and you had a \$6000 deduction for the SE tax. Subtract \$3,000 (1/2 your deduction for the SE tax) from \$50,000, and you get \$47,000. Take 20% of that, and you get \$9,400. That would be your Keogh contribution. You should get to the same number by walking through the IRS's procedure, but doing it that way it is very hard to see what is really going on. Perhaps someday the tax programs will address this problem. Every time I discover an overlooked business deduction that lowers my net income, I have to manually re-calculate the Keogh contribution. And, you don't want to over-contribute.
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Just take your net income from self-employment, subtract your deduction for 1/2 of the Self-employment tax, and multiply that by 20%......

That would be your Keogh contribution. You should get to the same number by walking through the IRS's procedure, but doing it that way it is very hard to see what is really going on.

Yes, I realize this is how to calculate my contribution, but is the tax DEDUCTION for the contribution exactly the same number as the amount of the CONTRIBUTION?, or do I need to use the formula multiplying the AMOUNT of CONTRIBUTION by a deduction rate, i.e. .166667, to find the deduction permitted?
Thanks! Trisha
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<< My question is: does anyone know if this formula still applies to me if I am self employed, the sole proprietor of my business AND I am the ONLY employee? >>

Yes. See the discussion on page 12, which refers you to the Appendix, the table, and a worksheet.

TMF ExRO
Phil Marti
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Thanks TMF ExRO!
It seems that TurboTax figures it out on its own, also, but I will compare the results.
many thanks to you both.
Trisha