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
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- Entity Type
- Corporation
- S-Corporation
- Sole Proprietorship
- Partnership
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- Source of Income
- W-2 Income
- W-2 + Schedule K-1
- Net Profit
- Net Profit
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- Compensation for plan
- W-2 Income
- 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) minus ½ self-employment tax minus plan contribution. Deductions for sole proprietors or partnerships are limited to net profit minus ½ self-employment tax.
Dedicated Defined Benefit Services, FuturePlan and Ascensus do not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. The information provided by the Defined Benefit Calculator is for U.S. residents only and does not constitute an offer to sell, or a solicitation of an offer to purchase, securities in any jurisdiction to any person to whom it is not lawful to make such an offer.
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