1040-US: Deduction for self-employment tax on Keogh, 401(K) and SEP Plan Contribution Worksheet does not match deduction on Form 1040

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Question

In the Keogh, 401(K) and SEP Plan Contribution Worksheet, why doesn't the deduction for self-employment tax in Step 2 match the deduction for self-employment tax reported on Form 1040, line 27?

Answer

The Keogh, 401(K) and SEP Plan Contribution Worksheet calculates on a per-activity basis. Therefore when more than one self-employment activity is present on the return, Step 2 of the worksheet reflects only the portion of the deduction for self-employment tax that is directly allocable to the activity under which the retirement plan is established.

For example, if a taxpayer has a Schedule C with $10,000 of net profit and a Schedule F with net profit of $20,000, and has a retirement plan established for the Schedule C activity, only one-third of the deduction for self-employment tax reported on Form 1040, line 27, is reported in Step 2 on the associated Keogh, 401(K) and SEP Plan Contributions Worksheet.

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