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I have an SCorp where I am the sole employee. I have set up a SEP. Since I hold 100% of the stock how do I account for the SEP contributions. Do they go on the SEP return or do they get added to my W2 and go on my return?

FYI. I have asked two CPA's and gotten two different answers.

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I have an SCorp where I am the sole employee. I have set up a SEP. Since I hold 100% of the stock how do I account for the SEP contributions. Do they go on the SEP return or do they get added to my W2 and go on my return?

FYI. I have asked two CPA's and gotten two different answers.

The SEP contributions are deducted on page 1 of the corporate tax return (Form 1120S, line 17). To the extent that the contributions are deducted by the corporation, the are NOT includable in the employee's gross income (i.e. they are not added to your W-2). The advantage of the SEP is that you have up until the due date of the corporate return (including extensions) to fund the SEP.

Internal Revenue Code Section 408(k) covers SEPs.

Good luck.
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Thanks for the info. As a 100% shareholder am I considered self-employed when determining the amount I can contribute?

To ask the question a little more broadly I know the 2% rule applies to fringe benefits( ie. Health insurance), does it apply in any way to SEPs.

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One more question, the following is from IRS Pub 560.

Where To Deduct Contributions
Deduct contributions for yourself on line 29 of Form 1040. You deduct contributions for your employees on Schedule C (Form 1040), on Schedule F (Form 1040), on Form 1065, on Form 1120, U.S. Corporation Income Tax Return, on Form 1120-A, U.S. Corporation Short-Form Income Tax Return, or on Form 1120S, U.S. Income Tax Return for an S Corporation, whichever applies to you


Hence my confusion. I am both myself and and employee of the Scorp. So I don't know whether to consider myself selfemployeed and use .13045 or and employee and use .15.

Once again thanks.
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There are a few things here:

1) You are not considered self-employed. You are an employee of your corporation. You are taxed on your share of the S-Corp's income (in this case 100%) and you report that income on your personal tax return (Form 1040). The S-Corp's income is NOT subject to self-employment tax.

2) For 2000, the maximum SEP contribution for an employee is 15% of the employee's compensation or $30,000--whichever is less. However, if the employee's compensation is over $170,000, the maximum contribution for the employee is $25,500.

3) Here's the tricky part: In your situation, your compensation for determining your contribution DOES NOT INCLUDE YOUR SHARE OF THE S-CORP's INCOME. For S-Corp shareholders, only W-2 wages are considered qualifying compensation.

4) SEP contributions are not subject to regular income tax, but they are subject to self-employment taxes.

Hope this helps.
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