TurboTax Business partnership. Employer, profit sharing contribution to 401K is incorrectly deducted from Net Income

[katonaleegp]

Sorry for the long subject line.  I am using TurboTax business to file partnership taxes. 

TL;DR How am I supposed to input an employer, profit sharing contribution so that it is not deducted (subtracted) from Net Income (Form 1065 Schedule M-1 and Form 1065 Page 6 Analysis of Net Income Line 1).  

We made employer profit-sharing contributions to a 401K.  TurboTax registers this (correctly) as a Line 13e contribution coded R.  However, when it comes to Form 1065 page 6 Analysis of Net Income (see also Schedule M-1 Reconciliation of Income per Books, TurboTax is subtracting (deducting) the profit sharing contribution from Net income (the form instructions state that the value in line 1 subtracts Schedule K lines 12 through 13e).  The TurboTax and online literature seems confident that subtracting the profit sharing 401K contribution is incorrect.  However, I cannot get my Schedule K to reconcile because of this problem.  Gemini tells me that there is supposed to be a box in Step-by-Step that I can check indicating the contribution is from the Partnership which would tell the software not to include this in Net income even though it appears on line 13e.  However, I have seen no such box.  I could manually override Line 1 of the Analysis of Net Income on page 6, but Copilot tells me that if I manually override box 1 on the page 6 Analysis of Net Income, either TT or the government will reject my electronic filing because the numbers will not total correctly.  

[PatriciaV · Accepted solution]

Employer contributions to a profit-sharing 401(k) are reported as a business expense on Form 1065 Line 18 and deducted from net income.

Profit-sharing contributions made on the behalf of partners are reported only on Schedule K Line 13(0) Code R and allocated to each partner on Schedule K-1. This amount does not appear on Form 1065 pg 1-4, so is not included in net income.

This is a complex and tedious process, and you may consider upgrading to TurboTax Experts. This online service provides step-by-step guidance from a tax expert whenever you need assistance, either over the phone or by screensharing.

[katonaleegp]

Thanks!  The nutshell I get from this is that the profit sharing contribution does flow to the partners through respective K-1's and does not reduce the net income.  My only problem is the lack of reconciliation.  My version of TurboTax business does not appear to have a line 13(o) Is that the letter"O" as in "Oscar?"  

On Form 1065 Schedule K (page 5, Partners' Distribute Share Items), I included the total of each partner's profit-sharing on line 13(e) under the heading for "Other deductions, Type "pensions and IRAs".  Taxslayer at this URL: How do I Report Schedule K-1 (Form 1065) Box 13 Information? – Support suggests that line 13 code "O" as in "Oscar" is for Dependent Care benefits and are documented on Federal Form 2441.

According to my reading of the the IRS deductions, code R is supposed to appear on line 13(e), the "catch all" line.  Instructions for Form 1065 (2025) | Internal Revenue Service. 

However, putting the code R in line 13(e) means that on 1065 page 6 Line 1 Analysis of Net Income, I "subtract the sum of Schedule K, lines 12 through 13e.  I read this to mean that I should include 13e in the total, deductible expenses for computing Net Income.  I understand that I am not supposed to subtract partnership from Net Income, but I cannot seem to figure out where in TurboTax to indicate this without a reconciliation error.

If there is suppsosed to be a line 13IoO d

Thanks for any help.  

[PatriciaV · Accepted solution]

Yes, there is a Line 13(e)(O) (oh) on Schedule K. Code R is entered below that line. Entries on Line 13(e) should have no effect on Schedule M-2. You may manually enter the profit-sharing contributions as an "Other decrease" on Line 7 of Sch M-2. If properly allocated to all Schedules K-1, the partners' capital accounts should reconcile.