Tax Law (Questions About Taxes)/SEP IRA for LLC

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QUESTION: Happy New Year Mr. Stancil!
Thank you in advance for helping me with my question.

I am a LLC partnership business owner with another partner.  We do not have any employees, just the two of us working for the company at the moment.  We each have a guarantee payment amount and we split the remaining net income.  Can you please tell me under what circumstances where a LLC partnership business owner is allowed to establish a SEP IRA without a company SEP under the current IRS SEP regulations?

Your response would be greatly appreciated very much!

Sincerely,
Chrissy

ANSWER: Chrissy,

Thanks for your question.

As long as your don't have any employees, it is fairly simple.  The partnership must make the contributions in accordance with the plan adopted by the company.  These would be deducted on the Form 1065, line 18.  The contribution for each individual partner would be shown on his/her K-1, line 13, code R.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: Good morning Mr. Stancil!

Thanks for the prompt response.  You answer is very helpful.  A follow-up question.  Is thee a minimum % where the company has to contribute to the plan?  For example, if my business partner and I are opt to receive no contribution from the company, but fund our own SEP IRA plan with our own money and at different level.  In this circumstances, do we still need to establish a company SEP plan?  Since we zero out our book at the end of each year and just carry over enough to cover Jan expenses, we do not see the benefit of a company contribution and we are trying to keep the managing fee to the minimum while reducing any unnecessary paperwork.

Thank you so much for your help on this matter and I truly appreciate it very much.

Best regards---Chrissy

ANSWER: Each partner can fund his/her own plan.  No minimums.  In this case, it is strictly a SEP IRA of the individuals and not the company

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: This sure simplifies a lot for us.  Just so that I totally understand how the tax structure of this particular plan works, you are saying that we won't have any amount listed in line 18 of Form 1065 and nothing listed in line 13 of K-1.  Instead, we would have the contribution amount listed in our own personal tax form since this is strictly a SEP IRA of individuals.  Correct?  Also, the IRS will not have any issue for the each business partner to establish their own an individual SEP IRA account without a company SEP plan.  Correct?

You response prompts another question.  Can each individual partner contributes to the maximum allowances?  i.e. $52k or the 25% of guarantee payment.

Your answers have been very precise and are pointing me to the right direction.

Thank you so much!  Chrissy

Answer
Yes, in both cases.  Nothing will appear on the 1065 in regard to the SEP, it will basically be a SEP for a self-employed person, so each partner is on his own as to how much to fund.  You can contribute the lesser of 52,000 or 20% of net SE income after one-half SE tax deduction.  The 25% applies to employees.

John Stancil, CPA

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John Stancil, CPA

Expertise

I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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