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misha_1966
Level 2
March 18, 2020
Solved

401K solo tax reduction numbers are too low

  • March 18, 2020
  • 1 reply
  • 19 views

Hi,

 

I have a small individual LLC business, and opened individual 401K account.

By entering different numbers in TurboTax self-employed 401K form I can see the different federal taxes calculated. 
By lowering Elective Deferrals by $1000, I get tax increase of $182.

By lowering my business income in another TT form by $1000, I get tax decreased by $314.

 

I would expect the numbers to be close, if not the same.

 

Am I doing something wrong?

 

thank you!

 

 

Best answer by MinhT1

The difference is explained by self-employment tax.

 

Lowering your business income will lower your tax and self-employment tax.

 

Lowering your solo 401(k) will only increase your tax, and not self-employment tax.

1 reply

M
MinhT1Answer
Level 15
March 18, 2020

The difference is explained by self-employment tax.

 

Lowering your business income will lower your tax and self-employment tax.

 

Lowering your solo 401(k) will only increase your tax, and not self-employment tax.

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M
misha_1966Author
Level 2
March 18, 2020

Thank you!

I am doing  401K solo for the first time.
So, you say, that 401K solo cannot help deduct self-employment tax ?

I am confused - TurboTax shows the above numbers in "Federal Tax" window.
Michael

M
MinhT1
Level 15
March 18, 2020

Your solo 401(k) deduction will help reduce your taxable income and your tax liability, but not self-employment tax.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"
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