What is the minimum dollar amount for 1099 income that I have to show on my tax return to qualify to have a Solo 401K? Is there a specific number?
ANSWER:
IRS Publication 560 (https://www.irs.gov/pub/irs–pdf/p560.pdf) which covers self-employed plans including solo 401(k) plans, simply states that you need to be performing part-time self-employment activity-it does not provide a dollar figure. What is important is that you are performing material services with the intent to make a profit. This is also discussed in Pub 560.
Essentially, earned income from self-employment is taxable income from running your own business. This also means you must reduce all expenses before computing net earnings from self-employment. See Rev. Rul. 56-407 under §1402(a). You can only make a solo 401k annual contribution if you have positive net income from self-employment activity for the year.
Who is Self-Employed?
Generally, you are self-employed if any of the following apply to you.
- You carry on a trade or business as a sole proprietor or an independent contractor.
- You are a member of a partnership that carries on a trade or business.
- You are otherwise in business for yourself (including a part-time business or a gig worker).
