Accrued profit-sharing contribution on cash basis

Technical topics regarding tax preparation.
#1
JoJoCPA  
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Can a cash-basis partnership accrue and deduct a profit-sharing contribution for their sole employee? What if the amount can only be estimated at this time and may not be known for sure until after the filing deadline? Can the return still be filed?
 

#2
sjrcpa  
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Yes to the first question.
Why not file an extension and wait until the exact number is known to file?
 

#3
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There are several partners and I’m 99% sure they won’t want to extend.
 

#4
sjrcpa  
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And why can't the profit sharing contribution amount be known?
 

#5
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JoJoCPA wrote:There are several partners and I’m 99% sure they won’t want to extend.


Only the manager has to make this decision. If they are not willing to extend, they lose the deduction.

Estimate the net income, provide a draft K-1 for the partners to complete their individual extensions, and wait until you have the additional information.

Would they prefer to amend their returns when you get the right number?
It's terribly improper to file a return without extension when you know the right number will be available in a reasonable amount of time. Filing an extension every once in a while is not uncommon...especially with these dynamic at play.
~Captcook
 

#6
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I’m pretty much with Captain, although they wouldn’t lose the deduction; they’d just have to amend (or file a superseding) return once the right number is known, as Captain says, unless we’re talking peanuts. In that case, you’ll just have to clean up the under/over accrual in the following year.

The fact is, the partners have created this problem.

Filing an extension every once in a while is not uncommon...especially with these dynamic at play.


To that point, we’re filing more and more of these every year. Things are just getting too complicated these days – you see that Loan Cost thread? And rushing through things doesn’t really benefit anyone. Add to those facts that a lot of stuff doesn’t come out until really late. So we told a bunch of clients that (1) we’ll do a projection prior to year-end [or by 1/15/2020] and then (2) we’ll see you after tax season. We’re rolling 1Q 2020 estimates into the extension calculations.
 

#7
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We are talking peanuts. Spoke to client today. They don’t want to extend. The actual amount can’t be determined quickly because the pension people need the final contribution amounts from all of the partners, which they won’t have for a while still. So we will deduct next year.
 

#8
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OP refers to a "sole employee" (which I missed on first reading) and "we are talking peanuts". And Jeff-Ohio refers to cleaning up the under/over accrual the next year. And OP says "we will deduct next year". I'm lost. Is it that you will deduct an estimated amount and then clean up next year, or just deduct the whole thing next year, i.e., when paid?

I ask because I didn't think the treatment is optional. If the payment is made on or before the extended due date in 2020 and is on account of 2019. isn't it deemed paid in 2019?
 

#9
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My understanding is that a cash-basis taxpayer can elect to deduct an accrued p/s contribution in the year it relates to so long as it is paid before the due date or filing date of the return, whichever is earlier. That will not be the case here and the partners do not want to extend and hold up their returns for what will amount to a very small p/s contribution for their sole employee. Thus we will just deduct the full amount in 2020 when paid.
 

#10
Nilodop  
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My understanding is that a cash-basis taxpayer can elect to deduct an accrued p/s contribution in the year it relates to so long as it is paid before the due date or filing date of the return, whichever is earlier..

The law says:
(6) Time when contributions deemed made
For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).


So can't they extend the 2019 1065 but file it by the unextended due date, accruing their best estimate of what the payment will be?
 


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