We have a profit sharing plan for a sole proprietership. It has always been my understanding that to begin the calculation I start with Net C and then subtract 1/2 SE tax. I have come across a position stating that you should actually take (Net C *.9235) and then subtract 1/2 SE tax. Is this alternative view correct?

Contributions for Self employed individuals are based on their Net Adjusted Business Income.

This page ,from IRS publication 560, helps to explains how to figure the deduction
http://www.irs.gov/forms_pubs/pubs/p56005.htm


Alos, see "Deduction Limit for Self-Employed Individuals" on the following page

http://www.irs.gov/forms_pubs/pubs/p56004.htm

I hope it helps.

the typical calc I learned would be:
start with
1. Sched C
2. subtract contributions to rank and file
3. multiply by .9235
4. calculate FICA
5. subtract FICA from value in step 2
6. split step between contribution and compensation.

Tom:
In Step 5, don't you subtract 1/2 of FICA from value in Step 2?

yes, that is what I meant.

As the social security tax rate is 6.2% each for employers and employees, wouldn't the multiplier be .938 (1-.062) instead of .9235 (1-.0765(old rate)).

The FICA tax rate is the same for employees (6.2% OASDI plus 1.45% Medicare), thus the .9235 multiple. The gross amount is multiplied by this factor to simplify a calculation that will avoid the self employed person from having to pay FICA tax on FICA tax (since in a corporation, the employer pays half and the employee pays half. Mathematically it's not perfect, but that's what the IRS says to do.