SEP Contribution not made by filing date
Client’s tax preparer calculates SEP contribution and shows deduction on ’07 return. Return is filed with no extensions. Actual contribution has not yet been made (sole proprietor, Schedule C). What now? Thanks,
Tim
Permalink Submitted by Alan Spross on Tue, 2008-04-29 00:51
Unfortunately, he cannot make the contribution and will have to amend the return to remove the contribution. See following pasted explanation:
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Extension strategies
There are some cases in which you might have your tax return prepared and ready to go, don’t have a balance due, and might still want to file Form 4868 for an automatic extension. Why? To extend the time limit for funding self-employment retirement plans such as the Simplified Employee Pension (SEP) or Keogh.
While the mid-April tax-filing deadline is the drop-dead date for IRA contributions (both traditional and Roth) for the prior calendar year, a valid filing extension will also extend the time you have to fund your SEP or Keogh retirement plan. So if you would like to make a contribution to your SEP or Keogh but don’t have the funds right now, an extension will allow you to defer that contribution until Aug. 15, but still let you deduct it on your tax return.
If you decide to do this, make sure you won’t be surprised with a balance due when you file the return, or at least make sure you have properly estimated any balance due with the extension. Why? If you didn’t make a proper estimate of your tax liability, the IRS can retroactively deny your extension back to mid-April. If your extension is denied retroactively, your due date to make a SEP or Keogh contribution also reverts back to April. If you make a contribution later, the IRS could deny your contribution, remove your deduction, and also try to assess taxes on your SEP “excess contribution.”
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Permalink Submitted by Tim Golden on Tue, 2008-04-29 03:42
Thank you, Alan
Permalink Submitted by A Ramos on Wed, 2011-04-20 05:04
Hello,
Does the above discussion also apply to the Solo 401k? i.e. If you did not file a 4868, you cannot contribute after the original deadline?
Thanks
Permalink Submitted by mk foss on Wed, 2011-04-20 22:21
The same rule applies. Contributions to an employer plan (including SEPs and solo 401ks) are due by the extended due date of the return. If the return is not extended, no deduction is available.
Permalink Submitted by Ed on Sat, 2015-05-09 02:32
What if you amend the return to correct an item n the Sch C the also make the SEP contribution you forgot to do make by April 15?would the amended return allow you to make the full SEP contribution then?
Permalink Submitted by Alan - IRA critic on Sat, 2015-05-09 04:09
The answer to that is not real clear. While IRS guidance appears to suggest that a SEP contribution after 4/15 cannot be made without a timely filed extension, it is also not clear why the extended due date deadline would not apply as it does to other options available with a timely filed filed return including extensions .