As discussed earlier under Simplified Employee Pension (SEP)
and Qualified Plans, if you are self-employed, you
must use the following rate table or rate worksheet and deduction
worksheet to figure your deduction for contributions you made for
yourself to a SEP-IRA or qualified plan.
First, use either the rate table or rate worksheet to find your
reduced contribution rate. Then complete the deduction worksheet to
figure your deduction for contributions.
The table and the worksheets that follow apply only to
unincorporated employers who have only one defined contribution plan,
such as a profit-sharing plan. A SEP plan is treated as a
profit-sharing plan.
Rate table for self-employed.
If your plan's contribution rate is a whole percentage (for
example, 12% rather than 12 1/2%), you can use the
following table to find your reduced contribution rate. Otherwise, use
the rate worksheet provided later.
First, find your plan contribution rate (the contribution rate
stated in your plan) in Column A of the table. Then read
across to the rate under Column B. Enter the rate from
Column B in step 1 of the Deduction Worksheet for
Self-Employed.
Rate Table for Self-Employed
Column A
If the plan contri-
bution rate is:
(shown as %) |
Column B
Your
rate is:
(shown as decimal) |
| 1 |
.009901 |
| 2 |
.019608 |
| 3 |
.029126 |
| 4 |
.038462 |
| 5 |
.047619 |
| 6 |
.056604 |
| 7 |
.065421 |
| 8 |
.074074 |
| 9 |
.082569 |
| 10 |
.090909 |
| 11 |
.099099 |
| 12 |
.107143 |
| 13 |
.115044 |
| 14 |
.122807 |
| 15* |
.130435* |
| 16 |
.137931 |
| 17 |
.145299 |
| 18 |
.152542 |
| 19 |
.159664 |
| 20 |
.166667 |
| 21 |
.173554 |
| 22 |
.180328 |
| 23 |
.186992 |
| 24 |
.193548 |
| 25* |
.200000* |
| *The deduction for annual employer contributions
to a SEP plan or a profit-sharing plan cannot be more than 13.0435%
of your net earnings (figured without deducting contributions for
yourself) from the business that has the plan. If the plan is a
money purchase plan, the deduction is limited to 20% of your net
earnings. |
Example.
You are a sole proprietor and have employees. If your plan's
contribution rate is 10% of a participant's compensation, your rate is
0.090909. Enter this rate in step 1 of the Deduction Worksheet
for Self-Employed.
Rate worksheet for self-employed.
If your plan's contribution rate is not a whole percentage (for
example, 10 1/2%), you cannot use the Rate Table for
Self-Employed. Use the following worksheet instead.
Rate Worksheet for Self-Employed
| 1) |
Plan contribution rate as a decimal (for
example, 10 1/2% = 0.105) |
|
| 2) |
Rate in line 1 plus 1 (for example, 0.105 + 1 =
1.105) |
|
| 3) |
Self-employed rate as a decimal rounded to at
least 3 decimal places (line 1 x line 2) |
|
Portion of Form 1040 and Portion of Schedule SE
Figuring your deduction.
Now that you have your self-employed rate from either the rate
table or rate worksheet, you can figure your maximum deduction for
contributions for yourself by completing the following worksheet.
Deduction Worksheet for Self-Employed
| Step 1 |
| Enter your rate from the Rate
Table for Self-Employed or Rate Worksheet for
Self-Employed |
|
| Step 2 |
| Enter your net earnings (net profit)
from line 31, Schedule C (Form 1040); line 3, Schedule C-EZ
(Form 1040); line 36, Schedule F (Form 1040); or line 15a, Schedule
K-1 (Form 1065) |
|
| Step 3 |
| Enter your deduction for
self-employment tax from line 27, Form 1040 |
|
| Step 4 |
| Subtract step 3 from step 2 and
enter the result |
|
| Step 5 |
| Multiply step 4 by step 1 and enter
the result |
|
| Step 6 |
| Multiply $170,000 by your plan
contribution rate. Enter the result, but not more than $30,000 |
|
| Step 7 |
| Enter the lesser of step 5 or step
6. This is your maximum deductible contribution. Enter your
deduction on line 29, Form 1040 |
|
Example.
You are a sole proprietor and have employees. The terms of your
plan provide that you contribute 8 1/2% (.085) of your
compensation and 8 1/2% of your participants'
compensation. Your net profit from line 31, Schedule C (Form 1040) is
$200,000. In figuring this amount, you deducted your common-law
employees' compensation of $100,000 and contributions for them of
$8,500 (8 1/2% x $100,000). Your self-employment tax
deduction on line 27 of Form 1040 is $7,403. See the filled-in
portions of both Schedule SE (Form 1040) and Form 1040, later.
You figure your self-employed rate and maximum deduction for
employer contributions you made for yourself as follows.
Rate Worksheet for Self-Employed
| 1) |
Plan contribution rate as a decimal (for
example, 10 1/2% = 0.105) |
0.085 |
| 2) |
Rate in line 1 plus 1 (for example, 0.105 + 1 =
1.105) |
1.085 |
| 3) |
Self-employed rate as a decimal rounded to at
least 3 decimal places (line 1 x line 2) |
0.078 |
Deduction Worksheet for Self-Employed
| Step 1 |
| Enter your rate from the Rate
Table for Self-Employed or Rate Worksheet for
Self-Employed |
0.078 |
| Step 2 |
| Enter your net earnings (net profit)
from line 31, Schedule C (Form 1040); line 3, Schedule C-EZ
(Form 1040); line 36, Schedule F (Form 1040); or line 15a, Schedule
K-1 (Form 1065) |
$200,000 |
| Step 3 |
| Enter your deduction for
self-employment tax from line 27, Form 1040 |
7,403 |
| Step 4 |
| Subtract step 3 from step 2 and
enter the result |
192,597 |
| Step 5 |
| Multiply step 4 by step 1 and enter
the result |
15,023 |
| Step 6 |
| Multiply $170,000 by your plan
contribution rate. Enter the result but not more than $30,000 |
14,450 |
| Step 7 |
| Enter the lesser of step 5 or step
6. This is your maximum deductible contribution. Enter your
deduction on line 29, Form 1040 |
$ 14,450 |
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