Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121114  
Subject: Re: Income: Schedule C vs. Misc Date: 5/1/2012 1:18 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 5
Phil glossed over the math. If you read the Internal Revenue Code, you will find that SEP deductions are indeed limited 25% of your net self-employment income. But your net self employment income is not the bottom line of your schedule C. You start with that, then subtract off the deduction for 1/2 of your Self Employment tax, AND you also subtract off the deduction for your SEP contribution.

That's a bit of a circular calculation. But if you dust off your high school algebra, you'll find that 25% of your SE income after deducting the SEP contribution is the same as 20% of your SE income before deducting the SEP contribution.

Hence, the usual short cut of saying your SEP is limited to 20% of your SE income.

--Peter
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
Post of the Day:
Macro Economics

2.1: The Labor Pool Problem
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement