Is Solo 401k Contribution Specific to company it was started with, one company is profitable the other isn't, net SE income is negative?

[rintelmanj]

I have two companies, one I file a schedule C for and is profitable. This is the company with which my solo 401k is attached. I have a second company that is an LLC, limited partnership, and it lost more money than the schedule C company, resulting in a negative net Self-employment income.

Can the contributions I made to my solo 401k, still be deducted since the contributions were made in a plan associated with my profitable business, or, does the fact that my overall net Self-Employment income is less than $18,000 mean that the contributions cannot be deducted?

[dmertz]

The answer depends on the ownership structure of the two businesses which determines whether or not these businesses are a controlled group and are therefore considered to be a single employer.  If they are considered to be a controlled group, the businesses are considered to be a single employer with regard to retirement plans.  If you are 100% owner of your sole proprietorship and your LLC is a single-member LLC, these must be treated as a single company and your net earnings from self-employment income will be determined by aggregating these two businesses.

See the following discussion of controlled and affiliated service groups: <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-tege/epchd704.pdf">https://www.irs.gov/pub/irs-tege/epchd704.pdf</a>

If these businesses are not members of a controlled group, they can be treated as separate businesses with separate retirement plans (or lack thereof).  TurboTax does not support determining the permissible contributions when multiple separate businesses are involved.

[rintelmanj]

Thank you, this is most helpful. It appears I will not be able to treat them separately. I own 100% of my LLC treated as a sole proprietorship and my other LLC is a partnership of which I am a 90% owner. I believe this would be considered a brother-sister relationship. The only caveat I see is that ownership structure is different between the two entities, meaning that the same owners do not have ownership in both companies. I will mention that my wife is owns the remaining 10% of my partnership LLC, and while she is not materially involved in the management of the business, it appears her ownership may be attributable to me. Does that my thinking appear to be accurate in regards to not being able to treat the entities separately for retirement plan contributions?

[dmertz]

Even if the 10% owner was an unrelated person, your 90% ownership of the partnership is sufficient to make your two companies a controlled group that must be aggregated with respect to your retirement plan.

[dmertz]

Answered in the comments.