File S-Corp return w/SEP deduction before funded

[HV Ken]

Taxpayer placed S-Corp return on extension. Has decided to create a SEP and fund it for 2012 before the 9/15 deadline to lower the K-1 hit on personal return. Would like the S-Corp return updated to reflect the contribution and generate the K-1 showing the anticipated SEP contribution so he can include it on his personal return to file by the 4/15 1040 deadline.

Looking to see if this sequence of events works or is a problem. It appears analogous to filing a 1040 return in Feb stating you will make an IRA contribution by 4/15, but really don't know if the rules are different for the S-Corp return.

To be clear, here is the sequence:

1) S-Corp return timely placed on extension.

2) Decision to create and fund SEP by the 9/15 S-Corp extended return due date.

3) Finalize and file S-Corp return now showing anticipated contribution and deliver K-1s to shareholders.

4) Shareholders file personal 1040 return by 4/15 with the K-1 that reflects the SEP contribution that has not yet been made.

Does this sequence work, or does the S-Corp return need to remain open until the SEP is funded?

Hopefully I explained this well enough. Thanks for any insights you can provide on this.

[Maribeth]

The SEP must be funded by the due date of the return, including extensions. The appropriate deduction goes on the 2012 tax return.

Some retirement plans must be established before the end of the tax year --- established, not funded. Just checked and the SEP can be established after the year end.

Once you have placed the corporation on extension and determined the appropriate SEP deduction, you can file the corporate return any time before the due date. The filing of the return will not negate the funding of the plan as long as the funding is done by the due date of the return.

Long story short: take the deduction on the 2012 return; fund the plan by 9/15/13

[HV Ken]

Thanks Maribeth - that was my gut, but wanted to ensure. We are forming a new relationship with this client and don't want this to blow up! His previous perparer told him there was nothing he could do to lower the K-1, so we explained the SEP and the process and he was ecstatic! Our only confusion was if everything needed to in place and funded prior to submitting the returns to reflect the activity.