SEP-IRA contribution and LLC

Technical topics regarding tax preparation.
#1
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Let’s say an LLC has gross profit of $100,000 in 2022 and there are two members. I understand the the maximum contribution rate is 20%. So is the contribution amount to be calculated based on $100,000 for each of the members, or $50,000?
Last edited by MeaningfulIdea on 5-Jun-2023 12:59pm, edited 1 time in total.
 

#2
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Assuming it's taxed as a partnership, It's based on the profit share of each owner. So if they are 50:50 owners, the starting point is $50,000 each. Don't forget to knock off the SE tax deduction before you calculate the maximum contribution.
 

#3
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Thank you. Yes the LLC is taxed as a partnership.

One further question. Since the contribution made by the LLC is also deductible to the LLC, it seems to me the calculation of the maximum contribution amount becomes circular.

For example, original gross profit of the LLC is $100,000. Therefore, $12,500 (25% of $50,000) maximum contribution is made by the LLC for each partner. But then the $25,000 total contribution made by the LLC is also deductible to the LLC. Therefore the gross profit of the LLC now becomes $75,000 only. Would that make the original contribution exceed the maximum contribution amount now?
 

#4
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MeaningfulIdea wrote:Since the contribution made by the LLC is also deductible to the LLC...


No, see Schedule K-1 Box 13 Code R
 

#5
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Thank you again

One last question, is the maximum contribution rate for the two partners/members 25% or 20%? I have looked on the web and found conflicting information. Some websites said 25% and some seem to say 20%. Again this is an LLC taxed as a partnership.
 

#6
sjrcpa  
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The maximum is 25% but it is computed on net self-employment income which makes the actual amount about 20%.
 


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