Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.
Solo 401k Contributions FAQ – Do I report my solo 401k contributions on Schedule C (1040)?
QUESTION:
Do profit-sharing contributions reduce business income? If so, it seems it would make sense to max out profit-sharing contributions to reduce taxes. I noticed the profit-sharing plan is Line 19 of Schedule C but I saw elsewhere that profit-sharing contributions are reported on Line 16 of Schedule 1.
RESPONSE:
How to report Solo 401k contributions depends on how the self-employed business is taxed.
For a self-employed business taxed as a sole proprietorship, the ability to make solo 401k contributions is based on self-employment compensation (i.e. net self-employment income reported on line 31 of Schedule C LESS one-half of the self-employment compensation).
Any pre-tax solo 401k contributions (whether made as employer elective deferrals or employer pre-tax contributions) are reported on Line 16 of Schedule I of Form 1040. Please note that such contributions are certainly not reported on Schedule C as this would make the determination of self-employment compensation circular.
Please see more at the following links:
