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

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  • #16
    I've got a post on 1120S running on Monday. Hopefully it'll generate some good discussion.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

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    • #17
      Originally posted by The White Coat Investor View Post

      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.
      right, as I stated it’s on line 7 for you or 8 for non officer

      I suppose one could look at it as a deduction, but I would counter:

      does your business income change whether or not you make a MBDR contribution, all else being equal?

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      • #18
        Employee after-tax contributions should generally be treated the same as designated Roth contributions.

        They are deducted from your net pay and contributed by the employer. However, because they are not pre-tax, they would not reduce your reported 1120S Line 7 Compensation of officers or your W-2 Box 1 wages. The only difference is designated Roth contributions are reported in your W-2 Code 12 Code EE.

        Neither are deducted on Line 17, because they are not pre-tax contributions.

        Essentially, employee after-tax contributions are a non-reportable event to Form 1120S and Form W-2.

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        • #19
          Originally posted by jacoavlu View Post

          right, as I stated it’s on line 7 for you or 8 for non officer

          I suppose one could look at it as a deduction, but I would counter:

          does your business income change whether or not you make a MBDR contribution, all else being equal?
          Of course not, my point is simply that is must be EITHER on line 7 or line 17 or it'll be taxed twice.
          Helping those who wear the white coat get a fair shake on Wall Street since 2011

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          • #20
            Originally posted by spiritrider View Post
            Employee after-tax contributions should generally be treated the same as designated Roth contributions.

            They are deducted from your net pay and contributed by the employer. However, because they are not pre-tax, they would not reduce your reported 1120S Line 7 Compensation of officers or your W-2 Box 1 wages. The only difference is designated Roth contributions are reported in your W-2 Code 12 Code EE.

            Neither are deducted on Line 17, because they are not pre-tax contributions.

            Essentially, employee after-tax contributions are a non-reportable event to Form 1120S and Form W-2.
            So you're saying that employee pre-tax contributions to a 401(k) go on 17 but neither Roth nor MBDR ones do? You agree that's weird, right? They should at least make the instructions more clear.
            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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            • #21
              The IRS definitely should make this more clear, but it is not really weird. Line 17 is only for employer contributions.

              Technically, pre-tax employee deferrals are pre-tax salary reductions that are contributed by and considered employer contributions. That is why they are deducted on line 17.

              On the other hand, designated Roth and employee after-tax contributions are deducted from the employee's after-tax pay. Employer contributions are always pre-tax. There are no pre-tax employer contributions to be deducted.

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              • #22
                At the risk of sounding stupid, what is MBDR?

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                • #23
                  MegabackdoorRoth

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                  • #24
                    To be clear, my general opinion is that the IRS regs are typically quite logical (defying conventional wisdom, I realize).With that out of the way, I’m pretty sure we do it the “wrong” way on 1120S although W2 box 1 is reported at net, which agrees with 1040 reporting (of course). I’m at home and our tax s/w is not on the cloud - yet - but I’ll def check. And guess what? I will be perfectly content if that’s the case.

                    This instruction defies logic. Just because the employer transfers the 401k employee withholding does not create an expense for the employer any more than depositing income tax withholding from the employee is a deductible employer expense. Fortunately, the result of reporting per what we were taught in accounting 101 has no tax impact to the client. If I am right and this is what we do, then, we certainly will not be amending any returns. To what end?

                    While it is past my bedtime, I can think of no benefit nor any risk to continuing along the same path. Why make an unnecessary adjustment each year simply to take from one pocket to put it in the other? I think it actually would be interesting if the IRS audited and challenged but that won’t happen.

                    Absolutely no disrespect implied or intended for
                    spiritrider
                    Member
                    spiritrider - he is, I realize, simply the messenger and there is no one on the forum I hold in higher regard.
                    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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