I have entered Employer contributions for a Solo 401k, but they are not being deducted as a business expense. Please help with why and how to fix.

[DaveF1006]

To look at this in detail and to report a possible product defect, we would like to see a diagnostic copy of your return. The information in this file is a sanitized copy meaning there is no personal information, only numbers so that we can troubleshoot in depth, check for calculation issues, and to see how certain items are applied. Here is how to order. 

For Turbo Tax online, go to tax tools>tools>share my file with agent.  When this is selected, you will receive a token number.  Respond back in this thread and tell us what that token number is. 

If you use the desktop version, go to the black stripe at the top of the program, click on online, and then select send tax file to agent. Let us know what the token number is.

[Smith16]

Just to be clear; I provide you with my token number in this reply? Isn't this public? 

Can you confirm? Thanks 

[Smith16]

[phone number removed][phone number removed]6

Also DaveF1006; I notice in another post having to do with Employer Contributions to a plan; the employer portion should be an expense to the business. It does not appear that TT is calculating this properly when one enters Employer Contributions for a Solo 401k plan. I calculated the approx. tax benefit I should receive from the ER contribution made; and the amount I hand calculated and TT tax benefit is about 1/3. Meaning TT registers no additional tax benefit in the "walk me through" everything tax owed counter at the top of the program. Not when entering business deductions and not when finishing up after entering the personal information. Because it does not register the deduction it then also disallows adding any monies to a deductible IRA. It's difficult to explain fully here, but the levels of income involved; this should not be happening. Thank you for looking into this. 

[Smith16]

The token number is 4626745198842720-69989996

[VolvoGirl]

The filter ate your token number.  You can post a screenshot of it.   It is safe to post the token number.  That’s what it’s for to be secure.

[Smith16]

I see that. It also won't allow me to post a screen shot of it. so how in the heck do I provide the token to you. 

This is frustrating. Turbo Tax trying to squeeze out every last nickel in profit and sacrificing usability. 

[DaveF1006]

I reviewed your file and made the following observations. First, if you're self-employed and making employer contributions to your Solo 401(k), these are deductible as business expenses on Schedule C .  However, the total contributions (employee and employer) are also shown on Schedule 1 as part of the changes to income. This is the way the IRS categorizes the contributions, health insurance, and 1/2 of self-employment tax. 

This is confusing at first, but after looking at it. You were given the proper deduction for your solo 401K contribution.  Here's the breakdown.

Look at Schedule C, Box 4 and compare this with Line 10. Schedule 1. It's the same.  Now look at Schedule C  and Line 5. This is also reported in Lines 15–17 in Schedule 1.  These are the same. Now look at the bottom line in Schedule C and compare it with the bottom line in Schedule 1. It's the same.  

To summarize all your business income, 1/2 self-employment tax, contributions to retirement plans, and health insurance is itemized separately on Schedule 1 rather than just reporting your total net income amount in line 3 Schedule 1. This is the way the IRS categorizes this type of reporting and it's confusing at best but you still must love the tax code and it's nuances. All your income and contributions are properly accounted for.

[dmertz]

@DaveF1006, employer contributions to a solo 401(k) are not deductible on Schedule C.  They only go on Schedule 1 line 16 as part of the self-employed retirement deduction, which you indicated.  Only employer contributions for non-owner employees are deductible on Schedule C, and a solo 401(k) is not permitted to have non-owner participants.

[Smith16]

Hi Dave,

Thank you for your careful review.

-Do you know if the tax deduction for Solo 401k plans changed or was otherwise reduced for tax year 2024? My search does not reveal anything to suggest that.  But the tax benefit is proportionately less than previous years when looking at the Tax History/Summary list and year on year comparison. 

-When taking the full eligible contribution, calculated by TT, only offers roughly a 3% tax benefit from a tax reduction standpoint. Which is far less than in previous years. And the reduction seems to be only from the amount contributed as an EE not from the addition of the ER portion. 

-Might you explain why the tax liability counter at the top of the program does not register a reduction in the tax liability when the "max" bar is checked? Usually as I add expenses, the counter moves. Does the ER contrib. portion not show the tax liability reduction until some other entry is made? I did not notice this if it did. 

-Were my entries made properly for a Single Member LLC, non pass -thru, Schedule C business? 

-Lastly, does the maximize benefit box, include an allowable amount that does not provide any tax benefit? Like are the ER contributions, or some portion of not tax deductible? Such as with an IRA contribution? Like say when you may be allowed to contribute the full $8000 (regular plus catch up) to the IRA but only $5000 is tax deductible or provides a current tax benefit? 

Thank you so much for your help. 

[Smith16]

Is this new for 2024? Then how does a business owner benefit from making the Employer contributions for themselves? The IRS.gov site specifically states that when contributing to a Solo 401k plan the business owner is both employee and employer and can therefore contribute in both capacities. Where does one receive tax benefit from the Employer contributions? 

[VolvoGirl]

As said above in several posts it is an adjustment to income on Schedule 1 line 16 which goes to 1040 line 10.  That is for both the EE & ER contributions.  No, it is not new.  

[dmertz]

This has never changed.  The sole proprietor gets the deduction on Schedule 1 line 16 for both the employee elective deferrals and the employer contribution to the sole proprietor's 401(k) account.

See the IRS instructions for Schedule C line 19:

https://www.irs.gov/instructions/i1040sc#en_US_2024_publink24329wd0e1604

[Smith16]

I am not a sole proprietor. But I get the idea. Still makes no sense why the tax owed in the TT counter does not change when the "max contributions" is checked. Nor why the tax benefit/deduction seems to arise from only the EE contribution. My question was if the amount of the allowable deduction had changed? 

There have been many changes to the tax laws in the last several years. 

Might you be able to answer the question I had in the other string about whether or not there may arise a circumstance (as with an IRA) where the ER contributions to the Solo401k are not fully deductible? 

Thank you 

[dmertz]

If you file Schedule C, you are a sole proprietor.  A single member LLC that has not made the election to be a corporation is a sole proprietorship.

View on TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet the calculation of your permissible solo 401(k) contribution.

"There have been many changes to the tax laws in the last several years."

None of those changes apply to this situation.

[weafrique]

Were you able to resolve this issue?

EmployER contribution to a solo 401k is a business expense and therefore should reduce tax liability. This is not being reflected on turbo tax.

Deferral is zero because I already contributed $23k under my w-2 employee contribution.

Can anyone help?