I have a client that made an SEP-IRA contribution in 2014 before the tax due date for their S Corporation. They are applying the contribution to the 2013 tax year. However, since the client reports on a cash basis of accounting, how do I account for this transaction?

ANSWER

The BIDaWIZ Team's Answer:

You are correct that the SEP-IRA contribution can be reported as an expense for the 2013 tax year even though it occurred after the year end as referenced in IRC Section 404(a)(6) & Rev. Rul. 55-310, 1955-1 C.B. 45. The way to account for it may depend on your accounting software. However, if you're using QuickBooks, you would make an entry on 12/31/13 to debit SEP IRA benefits expense and credit a liability account named after your IRA for the amount contributed. In 2014, on the contribution check, use the liability account name (IRA). This should keep the expense in the 2013 tax year.