SEP IRA for LLC owned equally by spouses

Submitted by Josh Self on Tue, 2019-10-01 17:36

If husband and wife co-own an LLC (50/50) and the LLC receives a 1099 for business activities, do they have to make equal SEP contributions if a SEP contribution is made at all. In this case, the wife generated most of the business income this year, but the 1099 had the LLC EIN listed. It seems that equal SEP contributions need to be made if the LLC is equally owned 50/50, even though it all flows through to the same joint 1040. Any guidance would be greatly appreciated…



Submitted by William Tuttle on Wed, 2019-10-02 14:22

  • A partner is required to have materially participated in the business, for their share of business profits to be considered self-employment income and not investment income
  • Normally, business profits should be allocated based on ownership. However, the partner generating the 1099 income could receive substantial guaranteed payments.
  • SEP IRA contributions should be the same contribution rate for all employees.
  • Generally, an LLC is ill advised for 1099-MISC income unless it is a PLLC required by your state. It is unnecessary, provides no real benefit and in this case may be counter-productive. LLC’s are far too often a default reaction to the formation of a business. When they provide little to no liability protection to the personal acts of it’s owner’s.
  • It is far easier to file as a qualified joint venture (QJV) with two Schedule C’s instead of a Form 1065 partnership return and two Form K-1s. An LLC can only elect to file as a QJV in a community property state. If you are in a non-community property state and there is no requirement or compelling other reason. You should probably consider dissolving the LLC.

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