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Pub. 560, Retirement Plans for Small Business 2004 Tax Year

Chapter 5 - Table and Worksheets for the Self-Employed

This is archived information that pertains only to the 2004 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

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.

Caution
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)
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 (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.

  

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

  Step 1      
    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)  
    *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
 
  Step 2      
    Enter your deduction for self-employment tax from line 30, Form 1040  
  Step 3      
    Net earnings from self-employment. Subtract step 2 from step 1  
  Step 4      
    Enter your rate from the Rate Table for Self-Employed orRate Worksheet for Self-Employed  
  Step 5      
    Multiply step 3 by step 4  
  Step 6      
    Multiply $205,000 by your plan contribution rate (not the reduced rate)  
  Step 7      
    Enter the smaller of step 5 or step 6  
  Step 8      
    Contribution dollar limit $41,000
    If you made any elective deferrals, go to step 9.    
    Otherwise, skip steps 9 through 18 and enter the smaller of step 7 or step 8 on step 19.    
  Step 9      
    Enter your allowable elective deferrals made during 2004. Do not enter more than $13,000  
  Step 10      
    Subtract step 9 from step 8  
  Step 11      
    Subtract step 9 from step 3    
  Step 12      
    Enter one-half of step 11  
  Step 13      
    Enter the smallest of step 7, 10, or 12  
  Step 14      
    Subtract step 13 from step 3  
  Step 15      
    Enter the smaller of step 9 or step 14  
    If you made catch-up contributions, go to step 16.    
    Otherwise, skip steps 16 through 18 and go to step 19.    
  Step 16      
    Subtract step 15 from step 14  
  Step 17      
    Enter your catch-up contributions, if any. Do not enter more than $3,000  
  Step 18      
    Enter the smaller of step 16 or step 17  
  Step 19      
    Add steps 13, 15, and 18. This is your maximum deductible contribution  
    Next: Enter this amount on line 32, Form 1040.  

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) Plan contribution rate as a decimal (for example, 10½% = 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 ÷ line 2)  

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

  Step 1      
    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) $200,000
    *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
 
  Step 2      
    Enter your deduction for self-employment tax from line 30, Form 1040 8,128
  Step 3      
    Net earnings from self-employment. Subtract step 2 from step 1 191,872
  Step 4      
    Enter your rate from the Rate Table for Self-Employed or Rate Worksheet for Self-Employed 0.078
  Step 5      
    Multiply step 3 by step 4 14,966
  Step 6      
    Multiply $205,000 by your plan contribution rate (not the reduced rate) 17,425
  Step 7      
    Enter the smaller of step 5 or step 6 14,966
  Step 8      
    Contribution dollar limit $41,000
    If you made any elective deferrals, go to step 9.    
    Otherwise, skip steps 9 through 18 and enter the smaller of step 7 or step 8 on step 19.    
  Step 9      
    Enter your allowable elective deferrals made during 2004. Do not enter more than $13,000 N/A
  Step 10      
    Subtract step 9 from step 8  
  Step 11      
    Subtract step 9 from step 3    
  Step 12      
    Enter one-half of step 11  
  Step 13      
    Enter the smallest of step 7, 10, or 12  
  Step 14      
    Subtract step 13 from step 3  
  Step 15      
    Enter the smaller of step 9 or step 14  
    If you made catch-up contributions, go to step 16.    
    Otherwise, skip steps 16 through 18 and go to step 19.    
  Step 16      
    Subtract step 15 from step 14  
  Step 17      
    Enter your catch-up contributions, if any. Do not enter more than $3,000  
  Step 18      
    Enter the smaller of step 16 or step 17  
  Step 19      
    Add steps 13, 15, and 18. This is your maximum deductible contribution $14,966
    Next: Enter this amount on line 32, Form 1040.  

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 30 of Form 1040 is $8,128. 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) 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 ÷ line 2) 0.078

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