The income for an unincorporated business owner, reflected on Schedule C , Schedule F or Schedule K-1, on which contributions (for the business owner) to employer sponsored plans are based.
Total contributions to the self-employed business owner’s retirement plan cannot exceed the owner’s ANBI
IRC § 1402, IRC §401(c)(2)(A)(vi)), IRS Publication 560
Additional Helpful Information
- The actual calculation of the ANBI is dependent on the type of retirement plan to which the contribution is being made. For instance, the ANBI for determining contributions to a SEP IRA, is different from that which is used to determine contributions to a SIMPLE IRA.
- ANBI is calculated as follows:
- For defined contribution plans, defined benefit plans, and SEP IRAs
Step 1: Net profit from Schedule C , Schedule F or Schedule K1 – ½ self-employment Tax = Modified Net Profit
Step 2: Modified Net Profit- contribution to defined contribution plan, defined benefit plan or SEP IRA= ANBI
For SIMPLE IRAs
Step 1: Net profit from Schedule C or Schedule F – ½ SE Tax = Modified Net Profit
Step 2: Modified Net Profit = ANBI
Self-employment tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.
You figure SE tax yourself using Schedule SE (Form 1040). Social security and Medicare taxes of most wage earners are figured by their employers. Also you can deduct half of your SE tax in figuring your adjusted gross income. Wage earners cannot deduct social security and Medicare taxes
The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).