5. Table and Worksheets for the Self-Employed
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 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 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 1 of the Deduction Worksheet for Self-Employed.
Rate Table for Self-Employed
Column A If the plan contri- bution rate is: (shown as %)
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Column B Your rate is: (shown as decimal)
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1
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.009901
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2
|
.019608
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3
|
.029126
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| 4
|
.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
|
9
|
.082569
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10
|
.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*
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.130435*
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16
|
.137931
|
17
|
.145299
|
18
|
.152542
|
19
|
.159664
|
20
|
.166667
|
21
|
.173554
|
22
|
.180328
|
23
|
.186992
|
24
|
.193548
|
25*
|
.200000*
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*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 pension plan, the deduction is limited to 20% of your net earnings.
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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, 10½%), you cannot use the Rate Table for Self-Employed. Use the following worksheet instead.
Rate Worksheet for Self-Employed
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 following worksheet.
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 line 2 of the following worksheet. Enter on line 2 the total net profit you actually earned.
Deduction Worksheet for Self-Employed
Step 1
|
|
Enter your rate from the Rate Table for Self-Employed or Rate Worksheet for Self-Employed
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|
Step 2
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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)
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Step 3
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Enter your deduction for self-employment tax from line 27, Form 1040
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Step 4
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Subtract step 3 from step 2 and enter the result
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Step 5
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Multiply step 4 by step 1 and enter the result
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Step 6
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Multiply $170,000 by your plan contribution rate. Enter the result, but not more than $35,000
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Step 7
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Enter the lesser of step 5 or step 6. This is your maximum deductible contribution. Enter your deduction on line 29, Form 1040
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Example. You are a sole proprietor and have employees. The terms of your plan provide that you contribute 8½% (.085) of your compensation and 8½% 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 (8½% x $100,000). Your self-employment tax deduction on line 27 of Form 1040 is $7,663. 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.
Rate Worksheet for Self-Employed
1)
|
Plan contribution rate as a decimal (for example, 10½% = 0.105)
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0.085
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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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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)
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0.078
|
Deduction Worksheet for Self-Employed
Step 1
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Enter your rate from the Rate Table for Self-Employed or Rate Worksheet for Self-Employed
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0.078
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Step 2
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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)
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$200,000
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Step 3
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Enter your deduction for self-employment tax from line 27, Form 1040
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7,663
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Step 4
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Subtract step 3 from step 2 and enter the result
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192,337
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Step 5
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Multiply step 4 by step 1 and enter the result
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15,002
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Step 6
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Multiply $170,000 by your plan contribution rate. Enter the result but not more than $35,000
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14,450
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Step 7
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Enter the lesser of step 5 or step 6. This is your maximum deductible contribution. Enter your deduction on line 29, Form 1040
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$ 14,450
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Portion of Form 1040 and Portion of Schedule SE
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