Schedule C Expenses - Pension and Profit Sharing
When filing your individual tax return using Form 1040, Schedule C is used to report income or loss from a business operated as a sole proprietor. One important aspect of completing Schedule C is accurately reporting business expenses, including contributions to pension, profit-sharing, or annuity plans for employees.
Reporting Pension and Profit-Sharing Contributions
- Contributions made for the benefit of employees to pension, profit-sharing, or annuity plans (including SEP, SIMPLE, and SARSEP plans) should be reported on Schedule C, line 27a.
- If the plan includes you as a self-employed individual, the employer contributions made on your behalf must be reported on Schedule 1 (Form 1040), line 16, not on Schedule C.
- These contributions are considered ordinary and necessary business expenses and are deductible as long as they meet IRS requirements for qualified plans.
Important Considerations
- Do not include personal, living, or family expenses on Schedule C.
- Charitable contributions and fines or penalties paid to a government for violating any law are not deductible.
- Ensure that the contributions are made to a qualified retirement plan as defined by the Internal Revenue Code.
How to Report on Schedule C
On Schedule C, enter the total amount of contributions made for employees on line 27a. This amount reduces your net profit from the business. If you are also contributing to a retirement plan for yourself as an employer, those contributions are reported separately on Schedule 1 (Form 1040), line 16.
For more detailed guidance, refer to the official IRS instructions for Schedule C (Form 1040), which provide step-by-step guidance on reporting all business expenses, including retirement plan contributions.
Source:
Schedule C (Form 1040) Instructions
Disclaimer: Always verify information with the official Federal or State Department of Revenue Forms and Instructions before filing your tax return.