Can I Deduct My SEP-IRA Contributions?
This was a question posed to me by a recent reader:
Hi Jim,
I see that you’ve written a lot about sep-ira’s and I had a question I hoped you could answer, I was going to make a contribution to my sep-ira, can I deduct that on my taxes?Thanks,
The answer is yes but where you deduct it will depend on your situation.
Self-Employed Persons
If you are self-employed, you can contribute to an SEP-IRA as either an employer or an employee. When you contribute to the SEP-IRA as an employer, you can deduct that contribution but you deduct it from your business/self-employment income. If you contribute to the SEP-IRA as an employee, you can deduct that contribution from your own income.
Not Self-Employed Persons
If you work for a business that offers a SEP-IRA, you’re going to be contributing as an employee and subject to the rules of a Traditional IRA. So, again you will be able to deduct the contribution but you will be deducting it against your own income.
So to recap, if you are a self employed and contributing as an employer, you deduct it against your business’ income (you are still subject to self employment tax). If you are self-employed and contributing as an employee or you are not self-employed, you deduct it from your own taxes.
Anyone want to add anything? (or fix something I may have gotten wrong?)
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9 Comments - Share Your Thoughts
Is this true? I’ve been self-employed (sole-proprietorship) for many years and was under the impression that the SEP-IRA contribution deduction occurs on the front page of the 1040 (in the Adjusted Gross Income Section) RATHER than against the business income directly (reported on Schedule C). I’ll double-check this. If I’m wrong, I’ve overpaid for years…
It all depends on whether your contribution was as an employee or as an employer, check your brokerage records. You can always recategorize with your brokerage and refile.
I am a sole proprietor; therefore, I’m both the employer and the employee. I took a quick look at this again, and seems the deduction should be on the 1040, and not the Schedule C. If you have evidence to the contrary, please share!
I think Seven is correct, though I hope I’m wrong… Please tell me I’m wrong!
Publication 560 says, in the section ‘Where to Deduct Contributions’:
“Deduct the contributions you make for your common-law employees on your tax return. For example, sole proprietors deduct them on Schedule C…
…
…Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040…”
So, if I’m self employed and cash in a life insurance policy for $150,000, $100,000 of which will be regular income, ( my actual business income is miniscule) can I use that income for gauging my SEP IRA contribution?
thanks, marcy
Hopefully you can straighten this out for me…
For years now, my husbands employer has contributed 25% of my husbands salary to a SEP-KEOGH plan. 100% of everything that goes in there is from his employer. We then turn around and put it all in mutual funds.
I was told that because it was moved by us, we could deduct it from our taxes…so I have been doing so.
Is this not correct? Do we not get a tax advantage on this?
I appreciate any info I can get on this subject!
Thank you!
can I deduct my employee Sep IRA on my 1040 return, if so what line. Also, can I contribute to a sep ira and in the same year contribute to a traditional IRA
My husband is covered by a retirement plan, but I am eligible to contribute $5000 to an IRA. I also have $5000 self-employment income. Can I also contribute money to a SEP-IRA? Will this reduce our taxes?
C. Perkins: Is $5,000 self-employment your only personal income? If so, then when you contribute to your SEP-IRA as an employer, your “company” can deduct that from its taxes and thus the company’s income is $0. If $5000 is your only income, then you technically have $0 as income since the $5000 was deducted. Did that make sense? (if not, email me and I can try to clarify)
I’m pretty sure your husband can give you $5000 to contribute to an IRA but check with a tax expert, it’s a spousal contribution or IRA or something like that. (Google can help)
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