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

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    jfoxcpacfp
    Moderator

  • jfoxcpacfp
    replied
    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.

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  • Peds
    replied
    MegabackdoorRoth

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  • DrGuch
    replied
    At the risk of sounding stupid, what is MBDR?

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  • spiritrider
    Member

  • spiritrider
    replied
    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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  • The White Coat Investor
    Founder

  • The White Coat Investor
    replied
    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.

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  • The White Coat Investor
    Founder

  • The White Coat Investor
    replied
    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.

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  • spiritrider
    Member

  • spiritrider
    replied
    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.

    Leave a comment:

  • jacoavlu
    Physician

  • jacoavlu
    replied
    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?

    Leave a comment:

  • The White Coat Investor
    Founder

  • The White Coat Investor
    replied
    I've got a post on 1120S running on Monday. Hopefully it'll generate some good discussion.

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  • The White Coat Investor
    Founder

  • The White Coat Investor
    replied
    Originally posted by jacoavlu View Post
    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.

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  • jacoavlu
    Physician

  • jacoavlu
    replied
    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

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  • jacoavlu
    Physician

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

    Leave a comment:

  • The White Coat Investor
    Founder

  • The White Coat Investor
    replied
    Originally posted by jacoavlu View Post

    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.

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  • jacoavlu
    Physician

  • jacoavlu
    replied
    Originally posted by The White Coat Investor View Post
    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.”

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  • The White Coat Investor
    Founder

  • The White Coat Investor
    replied
    Originally posted by allesandre2014 View Post
    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.

    Leave a comment:

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