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.
The table and the worksheets in chapter 5 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.
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 |
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Step 2 | |||||
Enter your deduction for self-employment tax from line 27, 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 $225,000 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 | $45,000 | ||||
• | If you made any elective deferrals to your self-employed plan, go to step 9. | ||||
• | Otherwise, skip steps 9 through 20 and enter the smaller of step 7 or step 8 on step 21. | ||||
Step 9 | |||||
Enter your allowable elective deferrals (including designated Roth contributions) made to your self-employed plan during 2007. Do not enter more than $15,500 | |||||
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 (including designated Roth contributions), if any. Do not enter more than $5,000 | |||||
Step 18 | |||||
Enter the smaller of step 16 or step 17 | |||||
Step 19 | |||||
Add steps 13, 15, and 18. | |||||
Step 20 | |||||
Enter the amount of designated Roth contributions included on lines 9 and 17. | |||||
Step 21 | |||||
Subtract step 20 from step 19. This is your maximum deductible contribution. | |||||
Next: Enter this amount on line 28, Form 1040. |
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 27, Form 1040 | 8,723 | ||||
Step 3 | |||||
Net earnings from self-employment. Subtract step 2 from step 1 | 191,277 | ||||
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 | 14,920 | ||||
Step 6 | |||||
Multiply $225,000 by your plan contribution rate (not the reduced rate) | 19,125 | ||||
Step 7 | |||||
Enter the smaller of step 5 or step 6 | 14,920 | ||||
Step 8 | |||||
Contribution dollar limit | $45,000 | ||||
• | If you made any elective deferrals to your self-employed plan, go to step 9. | ||||
• | Otherwise, skip steps 9 through 20 and enter the smaller of step 7 or step 8 on step 21. | ||||
Step 9 | |||||
Enter your allowable elective deferrals (including designated Roth contributions) made to your self-employed plan during 2007. Do not enter more than $15,500 | 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 (including designated Roth contributions), if any. Do not enter more than $5,000 | |||||
Step 18 | |||||
Enter the smaller of step 16 or step 17 | |||||
Step 19 | |||||
Add steps 13, 15, and 18. | |||||
Step 20 | |||||
Enter the amount of designated Roth contributions included on lines 9 and 17 | |||||
Step 21 | |||||
Subtract step 20 from step 19. This is your maximum deductible contribution | $14,920 | ||||
Next: Enter this amount on line 28, Form 1040. |
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. 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 $8,723. 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 later.
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) (for example, 0.105 ÷ 1.105 = 0.095) | 0.078 |
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