See More: Monthly Tax Tips

Monthly Tax Tips

Deducting Retirement Contributions: Nice Try – But No!

Gelman, Rosenberg & Freedman CPAs is a member of CPAmerica International, an association of CPA and consulting firms that provides industry knowledge including insightful articles, to help member firms serve clients and other individuals and organizations.

Jan 2, 2014

Christine Peterson was an independent beauty consultant for Mary Kay, Inc. She earned commissions on wholesale purchases of Mary Kay products by her network of independent beauty consultants.

Peterson and Mary Kay entered into a nonqualified deferred compensation arrangement, whereby Peterson would continue to receive a portion of her commissions after retirement.

Christine Peterson and her husband formed a partnership under which they created a defined benefit retirement plan for her. The partnership reported the postretirement payments from Mary Kay as income and deducted contributions to the retirement plan.

The Tax Court agreed with the IRS that the payments made by Mary Kay under the nonqualified deferred compensation arrangement were subject to self-employment tax. Moreover, since the partnership was not engaged in a trade or business, it could not deduct contributions made to the defined benefit retirement plan (Christine C. Peterson and Roger V. Peterson v. CommissionerTC Memo 2013-27, Nov. 25, 2013).

Ian was invaluable throughout the complex process of setting up our accounting and payroll system, developing our internal controls and reporting systems, and launching our financial management in an efficient and sound manner. Ian is simply delightful to work with.

Amy Hawthorne |  Former Executive Director
Hollings Center for International Dialogue