1120S - how does EE and ER profit share to 401K affect lines 7 and 17

[allesandre2014]

1120S Question

In regards to Line 7 Wages / Salary

and Line 17 Pension Profit share calculation.



I need some guidance to understand how deferral and profit share is handled on the Tax return:

Salary 300K

Employee Deferral 19K

Employer Match 37K

Can someone shed some light on the correct amounts for LINE 7 and 17

Line 7 : 300K -19K employee def -> 281K

Line 17 Profit share - 37K

OR

Line 7 300K (EE portion not included )

Line 17 19K (EE) + 37K profit match -> 56K

I have looked at previous year and once EE deferral was included on line 7 (decreasing it by the deferral )
and for last year Wages/ Salaries paid were entered without the deferral and both EE and ER portions were added together and entered onto line 17 .


Thank you.

[DrGuch]

Include your employee deferral in Line 7. Box 1 of your W2 should have $281K to reflect the $19K deferral.

Box 17 should have $37K.

[DrGuch]

Just to clarify, line 7 should have $300K.

[spiritrider]

The correct answer is that pre-tax employee deferrals should reduce Line 7 and both pre-tax deferrals and employer contributions are deducted on Line 17. I.e. Line 7 = $281K and Line 17 = $56K. This is because pre-tax employee deferrals are salary reductions contributed and deductible by the employer.

The 2% shareholder-employee's W-2 Box 1 should reflect the salary reduction and the employee deferral reported on W-2 Box 12 Code D. Both the employee salary deferral and employer contribution is deducted by the employer under 26 U.S. Code § 404 Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan.

See Instructions for Form 1120-S, Lines 7/8 & 17.

Line 7/8: Don't include salaries and wages reported elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

Line 17: Enter the deductible contributions not claimed elsewhere on the return made by the corporation for its employees under a qualified pension, profit-sharing, annuity, or simplified employee pension (SEP) or SIMPLE IRA plan, or any other deferred compensation plan.

[DrGuch]

Looks like spiritrider is correct as usual. And looks like my previous CPA messed this up on my last couple years' 1120s. So line 7 on the 1120s should always be the same as box 1 of the W2, is this correct spiritrider?

[spiritrider]

Yes, Line 7 should always be the same as W-2 Box 1.

If you think about it, this is no different than how any other W-2 employee's pre-tax salary deferrals are treated. It reduces their pay check, reduces their W-2 Box 1, is reported on their W-2 Box 12 Code D, is deposited and deducted by their employer along with any employer contributions.

I don't know if the CPAs on here would recommend filing amended returns for prior years if Line 7 and W-2 were not reduced by employee deferrals and Line 17 did not include them. Your compensation would be higher, but your FICA taxes and compensation + distribution total income tax liability would be the same.

However, if your W-2 Box 1 was reduced, but not included in Box 17 or your W-2 as not reduced, but included in Box 17. I think it would be a more serious error.

[Bigzmd]

Just to clarify, line 7 should have $300K.

I looked at my1120S done by my CPA this year and it was reported like your CPA did in the past in t. Box 7 was my total W2 compensation (W2 line 1 + 19K) box 17 was 37K.They way spiritrider have described it, it looks like my is also wrong. Mine was done by one of the recommended CPAs from this site.

[DrGuch]

@Bigzmd: I think in our case this would be more of an "informational error" that would not change the tax liability as I think that's what spiritrider is trying to say. I did look at the 1120s instructions and it is as spiritrider said so looks like he is correct. So now I don't know if I'm really gonna go through the hassle of correcting those past forms .. I have yet to submit my 1120s for 2019 so I can correct that at least.

@spiritrider: any input on my QBI post?

[beagler]

There is debate on this. Spiritrider is probably technically correct as usual, but at least some CPAs are doing it otherwise:

https://www.bogleheads.org/forum/vie...1120s#p3753414

[The White Coat Investor]

1120S Question

In regards to Line 7 Wages / Salary

and Line 17 Pension Profit share calculation.



I need some guidance to understand how deferral and profit share is handled on the Tax return:

Salary 300K

Employee Deferral 19K

Employer Match 37K

Can someone shed some light on the correct amounts for LINE 7 and 17

Line 7 : 300K -19K employee def -> 281K

Line 17 Profit share - 37K

OR

Line 7 300K (EE portion not included )

Line 17 19K (EE) + 37K profit match -> 56K

I have looked at previous year and once EE deferral was included on line 7 (decreasing it by the deferral )
and for last year Wages/ Salaries paid were entered without the deferral and both EE and ER portions were added together and entered onto line 17 .


Thank you.

As far as the main question of where to put the employee contributions, I would not have thought you would put those under pension (17). In my books they are definitely under employee (i.e. officer) contributions, so I have put them on line 6. I doubt the IRS cares a lot if CPAs are getting this wrong and the tax bill is all the same though. But as I read the instructions again, it looks like Spiritrider is correct:

Don't include salaries and wages reported elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan

I suppose that includes my MBDR contributions too. So for those who screwed this up, know you're not alone.

[jacoavlu]

I suppose that includes my MBDR contributions too. So for those who screwed this up, know you're not alone.

i don’t believe that would include your after tax contributions as those would not be “reported elsewhere on the return.”

[The White Coat Investor]

i don’t believe that would include your after tax contributions as those would not be “reported elsewhere on the return.”

They would be reported on Line 17.

How else would you interpret that quote above from the 1120S instructions? But you're right it's an issue because if you don't put it on Line 7, then Line 7 won't be the sum of the W-2s. But as long as it is only counted once as a deduction for the business, I guess it's okay. Just don't put it on both lines.

[jacoavlu]

Your MBDR contribution isn’t a deduction for you or the business.

[jacoavlu]

assume voluntary after tax contributions would be among the line 7 officer compensation or for non officers line 8 salaries and wages. Not separately reported.

freely admit I’m no 1120s expert or could even call myself an 1120s novice. Never completed one or even attempted

[The White Coat Investor]

Your MBDR contribution isn’t a deduction for you or the business.

Absolutely it is to the business. It's part of my salary. So thus a deduction to the business and taxable income to me personally.