Husband Wife LLC and SEP Contributions
I have a new client that was advised by their tax advisor to set-up an LLC for her consulting business. It is a partnership (not S-corp) where she is 51% owner and he is 49% owner.
The tax advisor completed the 2016 return showing a SEP contribution for the wife only. Does the husband also need to have a SEP contribution made as well? Any clarification would be greatly appreciated. Thanks!!
Permalink Submitted by David Mertz on Thu, 2017-07-27 21:53
Yes, a SEP contribution for the husband is required, unless the husband does not meet the age, length of service or minimum compensation requirement stipulated in the SEP plan; also, see the follow-up comment below. SEP contributions must be made for all eligible employees. If the LLC is treated as qualified joint venture (in a community-property state) rather than a partnership (although I suspect not since the division is not 50/50), the tax return should have had two Schedules C and two Schedules SE. 51% of the LLC’s income and expenses should have appeared on the wife’s Schedule C and 49% on the husband’s Schedule C. If the LLC is instead treated as a partnership, the partnership should have provided each individual with a Schedule K-1 (Form 1065) showing each individual’s share of self-employment income on which each one’s SEP contribution must be based. The SEP contributions must each be of the same ratio to net earnings (net profit minus the deductible portion of each individual’s self-employment tax), unless limited by the maximum contribution of $53,000 per individual.
Permalink Submitted by David Mertz on Thu, 2017-07-27 23:53
The above assumes that the husband is not a limited partner who performs no services for the LLC. If the husband is indeed a limited partner who performs no services for the LLC and receives no guaranteed payments, the husband’s income from the LLC is not self-employment income and no SEP contribution would be made for the husband.