Type of business entity determines what can be counted as compensation in calculating the contribution amounts for a defined benefit plan.
COMPENSATION QUICK REFERENCE CHART
Source of Income
W-2 + Schedule K-1
Compensation for plan
W-2 Income Only
Earned Income (Calculate) * Schedule C, Line 31
Earned Income (Calculate) * Schedule K-1, Line 14a
Limited Liability Company (LLC) — compensation for plan depends on how LLC is taxed. See above for partnership or corporation rules.
Employees, other than owners, are paid W-2 income for all entity types.
Earned income = net profit (line 31 of the Schedule C as a Sole Proprietor or line 14a of the Schedule K-1 as a Partnership) minus½ self- employment tax minus plan contribution. Deductions for sole proprietors or partnerships are limited to net profit minus ½ self-employment tax.