SIMPLE

[Lion EA]

SIMPLE plan for a SMLLC, Schedule C, with NO employees contributing. SE individual deducts both his SIMPLE contribution and the 3% match on his Form 1040, right? Neither are deducted on Schedule C?

Should the checks be written from the business account or the personal account?

How should the SIMPLE be titled at the brokerage? Joe Individual's SIMPLE? Or, ABC, LLC, SIMPLE for benefit of Joe Individual?

I read all The Tax Book information and think I have the general concept and how it flows, kinda. Want to feel clearer on the details before opening an account.

[Lee B]

Assuming that you are talking about a SIMPLE IRA, the self employed individual is considered to be both an employer and an employee of the business. Just like an IRA the actual fiduciary account should be set up in the name of the individual.

If you have been reading The Tax Book then you're probably aware the maximum employee contribution limitation and the 3 % employer contribution are both calculated using self employment income from Line 4 - Section A of Schedule SE.

Since neither contribution is a deductible expense of the business, I would write the check from a personal checking account.

[mcb39]

SIMPLE plan for a SMLLC, Schedule C, with NO employees contributing. SE individual deducts both his SIMPLE contribution and the 3% match on his Form 1040, right? Neither are deducted on Schedule C?

Should the checks be written from the business account or the personal account?

How should the SIMPLE be titled at the brokerage? Joe Individual's SIMPLE? Or, ABC, LLC, SIMPLE for benefit of Joe Individual?

I read all The Tax Book information and think I have the general concept and how it flows, kinda. Want to feel clearer on the details before opening an account.

Wouldn't he have more benefit from a SEP?

[Lee B]

Since Lion refers to "employees" a SEP could be quite expensive because contributions must be made all eligible employees.

While with a Simple IRA, if all the employees decline to participate, there no effect on the owner's contribution.

[Lion EA]

Exactly. SEP prior to this year when an employee would be eligible. Employee does NOT want a retirement plan at this "second" job. SE owner will not have to make the 3% match for non-contributing employee with a SIMPLE IRA.

[mcb39]

Sorry, I originally read it as "no employees"!

[Lion EA]

Sorry, was being skimpy with words. No employees want to contribute.

[kcjenkins]

Significant difference between "No employees" and "No employees want to contribute".

[Lion EA]

But, I posted "NO employees contributing," so someone skimming might miss the last -- very crucial -- word that explains why the employer wants to stop the SEP and start a SIMPLE.

[Randall]

Besides the employee factor, the higher amount of SEP vs SIMPLE may depend on the owner's income. SEP maximum is calculated by a percentage. SIMPLE maximum is calculated by a dollar amount.

[Lion EA]

Very true. Income has been a bit cyclical, trending upward, and not huge numbers. The SEP came about as income rose and was chosen due to the late deadline (can be opened up to the filing date including extension and contributed to up to...). No employees back then. Now an employee. Will compare when I prepare 2013 which is on extension, but the SIMPLE may be better in some years than the SEP with no extra leaving the company for the employee who's not interested anyway. I'll provide full info for an informed choice before 1 October for 2014.

[JohnH]

^{He could exclude the employee for up to 3 years from first year of service and still use the SEP (unless he has already exhausted that option.)}

[Lion EA]

Yep, employees came and went but now same employee for 3 years. Decision time. (And, then Miller time?!)

[JohnH]

I assumed you'd probably exhausted that one, but thought I'd mention it just in the interest of being thorough.

Guess he could fire the guy, then hire him back after 3-1/2 years.

Probably wouldn't make the employee too happy.

On the flip side, I had a client one time who had to put money into a SEP for an employee whom he fired at mid-year after the guy stole from him. It was either give the thief a 15% bonus or deprive himself and his other employees of the benefits of the SEP that year. Talk about a client who was upset with his financial advisor and with me...