Publication 560: Retirement Plans for Small Business; Chapter 5 - Table and Worksheets for the Self-Employed

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Table of Contents

Community property laws.

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 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

Portion of Form 1040 and Portion of Schedule SE