SEP IRA

Archive for April, 2007

Question: Currently I have SEP, can I still buy tranditional IRA and get full or partial tax deduction?Thank you?

Answer: Obviously you know you can do both. The deductability of the IRA Contribution is based on your marital status and your adjusted gross income. If you are single the IRA would be fully deductible if your AGI is under $50,000. Between $50,000 and $60,000 you would allocate between deductible and non-deductible. Above $60,000 the IRA would be fully non-deductible.
If you are married the phase out limits are for AGI between $75,000 and $85,000.
You may also want to consider a ROTH IRA for the non-deductible portion if you meet the rules for contributing to a ROTH IRA.

SEP vs. IRA

Question: My employer gives me both a W2 and a 1099. Legal?

I work for a small firm. Every year they give me a W2 as well as a 1099. The 1099 is only for $4800, which is a lot less than the W2. Nevertheless, is this legal for the firm? If so, can I take advantage of the 1099 I am receiving and call myself self employed to deduct legitimate home office expenses? Could I also set up an SEP plan? I already have a SIMPLE IRA at work.
The 1099 I receive in addition to my W-2 is a 1099-MISC and it is labelled as independent Contractor. Basically my company pays me $400 a month this way, to supplement my W-2 earnings. So it is legitimate payment from them to me, and I do pay taxes on it. But my question has more to do with the second part. Since I am receiving the 1099, can I use it to my advantage and deduct home office expenses or setup an SEP retirement plan?

Answer: What type of 1099 is it? If it is a 1099-MISC, miscellaneous income, no, he is not corect to do that, if he’s also giving you a W-2. If it is a 1099-DIV (dividend) or 1099-INT (interest), that may be correct, if you own stock and received dividends, or they paid you interest for some reason. To correctly answer, we need to know what type of 1099 it is, and more details regarding what this income represents. Also, is this income double-counted, i.e., did you actually receive what is on the W-2 plus what is on the 1099?

But short answer, if its a 1099-MISC and you are also getting a W-2 from the same company, that is not correct, you cannot be both an independant contractor and an employee of the same company.

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