In an S Corp, you do pay yourself a salary. However, I don't undestand
why 40K for 10K. If your doing it as a deferral, you need 10K plus
payroll taxes. If you do it as an employer contribution it's 10K for
10K.

the legal entity that i set up is professional association. it's a
S-corp. if that's the case, my cpa is wrong about how much i can
contribute depends on how much salary i pay myself. hmmm

peter



On Tue, 11 Oct 2005 06:14:50 -0500, "John A. Weeks III"
<john[at]johnweeks.com> wrote:

- quote -

In article <ur4lk1le4b33s15nd53rqdv7pirsnr844b[at]4ax.com> ,
peter <petertan[at]gmail.com> wrote:

- quote -

That may be true if you are a C-corp. For S-corp and regular
businesses, you don't pay yourself. The business money and
your own money are essentially one in the same. At the end
of the year, you do the books, and whatever is left over is
your profit. You pay taxes on that profit, and you contribute
to your SEP account based on that profit. The money you draw
during the year doesn't matter since the profit that is left
at the end of year is simply added into what you took on the
draw account.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

i just asked my cpa and he told me i need to pay myself 40k salary in
order to contribute 10k towards sep-ira. thanks for the help

peter


On 3 Oct 2005 20:30:15 GMT, peter <petertan[at]gmail.com> wrote:

- quote -

peter wrote:
- quote -

Oh, sounds like you're sub-s rather than sole proprietor - definitely
ask your CPA...

-Tad

i predict that the net profit of my business will be around 80k, i
will pay myself 40k salary, then whatever is left(40k) will be
reported as divident. i always thought how much sep-ira contribution i
can make depends on how much i pay myself and the divident doesn't
count as "earned income",ie: if i pay myself 20k and report 60k as
divident i can only contribute 5k(25% of 20k), not 20k(25% of reported
earned income, salary plus dividents) I will ask my CPA and see what
he says

peter
- quote -

peter wrote:
- quote -

Peter,
When you're self-employed you don't figure the maximum SEP contribution
by paying yourself a salary and setting aside 25% of that. In fact it
probably doesn't matter whether you're taking $30k or $50k out of the
business, because the calculation is pegged to the earned income from
the business (according to the IRS) not what cash you draw out of it.

The calculation for a sole proprietor is (assuming you can't just ask
your accountant):

Take your Schedule C "bottom line" (income minus expenses)
Subtract 1/2 of your self employment tax (last number on Schedule SE)
Take the result and multiply it by 0.20

The result is your maximum contribution, unless the resulting figure is
greater than $42,000...it's capped at $42k for 2005.

I'm surprised Vanguard doesn't have some materials on their site to walk
you through this, the custodians all seem to cover it in the SEP forms
somewhere. You might call and ask, and have them help you with filling
out the forms properly, because they vary by custodian, and
overcontributing is an expensive mistake.

-Tad

Hi i'm self employed and i would like to contribute to my sep- ira
account this year but not sure how. i want to pay myself 40K salary
and contribute 10k(25%) to my sep- ira account. i already has sep-ira
account set up under vanguard. however, when i'm on the vanguard
website it asked"Are you investing money from an employer-sponsored
retirement plan or IRA?", should i check yes since i'm the owner as
well? then, should i contribute under Individual 2005 Tax Year or
Employer 2005 Tax Year? i have already contributed my 10k earlier this
year from my business checking account. does that mean i only pay
myself 30k since 10k already went into sep-ira? tia for your help

peter