With $5,000 gross self-employment proceeds and $3,000 of expenses, your net profit shown on Schedule C will be $2,000.
The maximum that you can contribute to a solo 401(k) is the amount of your net earnings. Net earnings are net profit minus the deductible portion of self employment taxes. Assuming that you do not also have W-2 income that would cause you to max out the Social Security wage base, your net earnings from $2,000 of net profit would be:
$2,000 - ($2,000 * 0.9235 * 0.153) / 2 = $1,859.70
With rounding of each step as calculated on TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet, the result is:
Round($2,000 * 0.9235) = $1,847
Round($1,847 * 0.153) = $283
Round($283 / 2) = $142
$2,000 - $142 = $1,858
