Calculate Your Contributions

To use the worksheet you will need net self-employment earnings (which is generally revenues less expenses including any contributions made to the SEP IRA or profit sharing plan (Keogh) on behalf of employees but not for the business owner), one-half of self-employment tax (shown on line 30 of the Form 1040), and the percentage contribution desired (up to 25%).

Contribution/Deduction Worksheet

(1) Plan contribution rate as a decimal up to a maximum of 25% (for example 25% would be .25).

(2) Rate from line 1 plus one (for example, .25 plus one would be 1.25).

(3) Self-employed rate as a decimal (divide line 1 by line 2) .25/1.25 = 20.00%.

(4) Enter contribution rate as determined from line 3 as a decimal (.20).

(5) Enter earnings. Estimate or use actual amount from line 3, Schedule C-EZ, or line 31, Schedule C, line 36, Schedule F, or line 15a, Schedule K-1 (form 1065).

(6) Estimate or enter amount for "one half self-employment tax" shown on line 30, on IRS Form 1040.

(7) Subtract Step 6 from Step 5.

(8) Multiply Step 7 by Step 4.

(9) Enter the smaller of Step 8 or $42,000 $41,000 in 2004). This is the maximum deductible contribution. Enter the deduction amount for the self-employed individual as an adjustment to income (AGI adjustment).

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