| Pub. 560, Retirement Plans for Small Business |
2006 Tax Year |
5.
Table and Worksheets for the Self-Employed
This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
As discussed in chapters 2 and 4, 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 self-employed individuals who have only one defined contribution plan,
such as a
profit-sharing plan. A SEP plan is treated as a profit-sharing plan. However, do not use this worksheet for SARSEPs.
Rate table for self-employed.
If your plan's contribution rate is a whole percentage (for example, 12% rather than 12½%), 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 4 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) |
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1
|
.009901
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2
|
.019608
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3
|
.029126
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4
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.038462
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5
|
.047619
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6
|
.056604
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7
|
.065421
|
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8
|
.074074
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9
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.082569
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10
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.090909
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11
|
.099099
|
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12
|
.107143
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13
|
.115044
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14
|
.122807
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15
|
.130435
|
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16
|
.137931
|
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17
|
.145299
|
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18
|
.152542
|
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19
|
.159664
|
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20
|
.166667
|
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21
|
.173554
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22
|
.180328
|
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23
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.186992
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24
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.193548
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25*
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.200000*
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*The deduction for annual employer contributions (other than elective deferrals) to a SEP
plan, a profit-sharing plan, or a money purchase plan, cannot be more than 20% of your net earnings (figured without deducting
contributions for
yourself) from the business that has the plan.
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Example.
You are a sole proprietor with no employees. If your plan's contribution rate is 10% of a participant's compensation, your
rate is 0.090909. Enter
this rate in step 4 of the Deduction Worksheet for Self-Employed.
Deduction Worksheet for Self-Employed
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Step 1
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Enter your net profit from line 31, Schedule C (Form 1040); line 3, Schedule C-EZ (Form 1040); line
36, Schedule F (Form 1040); or box 14, code A*, Schedule K-1 (Form 1065)
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*General partners should reduce this amount by the same additional expenses
subtracted from box 14, code A to determine the amount on line 1 or 2 of
Schedule SE
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Step 2
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Enter your deduction for self-employment tax from line 27, Form 1040
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Step 3
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Net earnings from self-employment. Subtract step 2 from step 1
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Step 4
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Enter your rate from the Rate Table for Self-Employed orRate Worksheet for
Self-Employed |
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Step 5
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Multiply step 3 by step 4
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Step 6
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Multiply $220,000 by your plan contribution rate (not the reduced rate)
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Step 7
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Enter the smaller of step 5 or step 6
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Step 8
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Contribution dollar limit
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$44,000
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•
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If you made any elective deferrals, go to step 9. |
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•
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Otherwise, skip steps 9 through 20 and enter the smaller of step 7 or step 8 on step 21. |
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Step 9
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Enter your allowable elective deferrals (including designated Roth contributions) made during 2006. Do
not enter more than $15,000
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Step 10
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Subtract step 9 from step 8
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Step 11
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Subtract step 9 from step 3
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Step 12
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Enter one-half of step 11
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Step 13
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Enter the smallest of step 7, 10, or 12
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Step 14
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Subtract step 13 from step 3
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Step 15
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Enter the smaller of step 9 or step 14
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•
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If you made catch-up contributions, go to step 16. |
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•
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Otherwise, skip steps 16 through 18 and go to step 19. |
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Step 16
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Subtract step 15 from step 14
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Step 17
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Enter your catch-up contributions (including designated Roth contributions), if any. Do not enter more
than $5,000
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Step 18
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Enter the smaller of step 16 or step 17
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Step 19
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Add steps 13, 15, and 18.
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Step 20
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Enter the amount of designated Roth contributions included on lines 9 and 17.
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Step 21
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Subtract step 20 from step 19. This is your maximum deductible contribution.
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Next: Enter this amount on line 28, Form 1040.
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Rate worksheet for self-employed.
If your plan's contribution rate is not a whole percentage (for example, 10½%), you cannot use the Rate Table for
Self-Employed. Use the following worksheet instead.
Rate Worksheet for Self-Employed
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1)
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Plan contribution rate as a decimal (for example, 10½% = 0.105)
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2)
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Rate in line 1 plus 1 (for example, 0.105 + 1 = 1.105)
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3)
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Self-employed rate as a decimal rounded to at least 3 decimal places (line 1 ÷ line 2)
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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 Deduction Worksheet for Self-Employed.
Community property laws.
If you reside in a community property state and you are married and filing a separate return, disregard community
property laws for step 1 of the
Deduction Worksheet for Self-Employed. Enter on step 1 the total net profit you actually earned.
Deduction Worksheet for Self-Employed
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Step 1
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Enter your net profit from line 31, Schedule C (Form 1040); line 3, Schedule C-EZ (Form 1040); line
36, Schedule F (Form 1040); or box 14, code A*, Schedule K-1 (Form 1065)
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$200,000
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*General partners should reduce this amount by the same additional expenses
subtracted from box 14, code A to determine the amount on line 1 or 2 of
Schedule SE
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Step 2
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Enter your deduction for self-employment tax from line 27, Form 1040
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8,519
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Step 3
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Net earnings from self-employment. Subtract step 2 from step 1
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191,481
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Step 4
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Enter your rate from the Rate Table for Self-Employed or Rate Worksheet for
Self-Employed |
0.078
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Step 5
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Multiply step 3 by step 4
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14,936
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Step 6
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Multiply $220,000 by your plan contribution rate (not the reduced rate)
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18,700
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Step 7
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Enter the smaller of step 5 or step 6
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14,936
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Step 8
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Contribution dollar limit
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$44,000
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•
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If you made any elective deferrals, go to step 9. |
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•
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Otherwise, skip steps 9 through 20 and enter the smaller of step 7 or step 8 on step 21. |
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Step 9
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Enter your allowable elective deferrals (including designated Roth contributions) made during 2006. Do
not enter more than $15,000
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N/A
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Step 10
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Subtract step 9 from step 8
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Step 11
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Subtract step 9 from step 3
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Step 12
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Enter one-half of step 11
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Step 13
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Enter the smallest of step 7, 10, or 12
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Step 14
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Subtract step 13 from step 3
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Step 15
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Enter the smaller of step 9 or step 14
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•
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If you made catch-up contributions, go to step 16. |
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•
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Otherwise, skip steps 16 through 18 and go to step 19. |
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Step 16
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Subtract step 15 from step 14
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Step 17
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Enter your catch-up contributions (including designated Roth contributions), if any. Do not enter more
than $5,000
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Step 18
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Enter the smaller of step 16 or step 17
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Step 19
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Add steps 13, 15, and 18.
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Step 20
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Enter the amount of designated Roth contributions included on lines 9 and 17
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Step 21
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Subtract step 20 from step 19. This is your maximum deductible contribution |
$14,936
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Next: Enter this amount on line 28, Form 1040.
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Example.
You are a sole proprietor with no employees. The terms of your plan provide that you contribute 8½% (.085) of your compensation
to
your plan. Your net profit from line 31, Schedule C (Form 1040) is $200,000. You have no elective deferrals or catch-up contributions.
Your
self-employment tax deduction on line 27 of Form 1040 is $8,519. See the filled-in portions of both Schedule SE (Form 1040),
Self-Employment Income,
and Form 1040, later.
You figure your self-employed rate and maximum deduction for employer contributions you made for yourself as follows.
See the filled-in Deduction Worksheet for Self-Employed on page 22.
Rate Worksheet for Self-Employed
|
1)
|
Plan contribution rate as a decimal (for example, 10½% = 0.105)
|
0.085
|
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2)
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Rate in line 1 plus 1 (for example, 0.105 + 1 = 1.105)
|
1.085
|
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3)
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Self-employed rate as a decimal rounded to at least 3 decimal places (line 1 ÷ line 2)
|
0.078
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Portion of Schedule S.E. (Form 1040) and Portion of Form 1040. Summary: These are portions of Schedule S.E. (Form 1040) and Form 1040 (2004) as pertains to the description in the text.
The completed line
items are:
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Under Portion of Schedule S.E. (Form 1040)
“Section A--Short Schedule S.E.”:
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“2. Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065), box 14, Code A (other than
farming); and
Schedule K-1, (Form 1065-B), box 9. Ministers and members of religious orders, see page S.E.-1 for amounts to report on this
line. See page S.E.-2 for
other income to report” field contains 200,000
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“3. Combine lines 1 and 2” field contains 200,000
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“4. Net earnings from self-employment. Multiply line 3 by 92.35% (.9235). If less than $400, do not file this schedule; you
do not owe
self-employment tax” field contains 184,700
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“5. Self-employment tax. If the amount on line 4 is: $94,200 or less, multiply line 4 by 15.3% (.153). Enter the result here
and on Form 1040,
line 57; More than $94,200, multiply line 4 by 2.9% (.029). Then, add $11,680.00 to the result. Enter the total here and on
Form 1040, line
58”
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“6. Deduction for one-half of self-employment tax. Multiply line 5 by 50% (.5). Enter the result here and on Form 1040, line
30” field
contains 8,518
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Under Portion of Form 1040
“Adjusted Gross Income”:
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“28. One-half of self-employment tax. Attach Schedule S.E.” field contains 8,518
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“30. Self-employed, S.E.P., S.I.M.P.L.E., and qualified plans” field contains 14,936
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“33. Add lines 23 through 32a” field contains 23,454
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