Client is member of 2 multi-member LLCs taxed as partnerships. LLC #1 has self-employment income and a SEP-IRA plan. LLC #2 has no SEP-IRA plan and a loss from self-employment. Maximum contribution to SEP-IRA was calculated at LLC level based on earnings from LLC #1.
When the information on Forms 1065 K-1 is entered into client’s individual tax return the self-employment income (loss) from the 2 LLCs is combined (or netted) which results in an over-contribution to the SEP-IRA made by LLC #1. Is there a work-around to deduct the entire contribution made by LLC #1 or is there an excess contribution that must be returned to LLC #1 by the SEP-IRA?
It should be noted that the earnings from LLC #2 are not known at the time the contribution by LLC #1 is made.