Solo401K reporting issues

[dandyandy357]

I am a sole proprietor and having difficulty entering my solo401k contributions. 

I contributed $20,500 to my solo401k as elective deferral (entered as Roth 401K under business section in turbotax).  I then used the maximize feature to determine how much I could contribute to my SEP IRA as an employer contribution (pretax) - this came out to $24,784.

With this information entered it says - Already Entered - $20,500.  Amount to contribute by plan due date - $24,784.  This is in the business section.

When I finish the rest of the taxes (married filing jointly), the Retirement Deduction Results in the Personal Deductions and Credit section shows that I can only contribute $4,280 by the plan due date (24,784-20,500). 

Am I misunderstanding what TurboTax is trying to tell me?  I should be able to contribute the 20500 as elective deferral AND 24784 as employer contribution I thought. 

Thanks for any advice/help!

[AliciaP1]

The maximize function calculates your maximum elective deferral for retirement contributions.  Since you are entering the employer contribution you should not be entering it in the personal section of your returns.  It is a business expense that reduces your income, not a personal deduction at this point.

You are, however, limited in the amount of the employer contribution to 25% of your business's net income and a combined limit between the SEP IRA contribution and your elective deferrals to your solo 401(k) of $61,000 for 2022.  You will need to review your Schedule C to determine the amount allowed for the employer contribution, then add that to your elective deferrals to ensure you are not over the limit for the year.

You will need to delete your SEP IRA contribution from the Personal Taxes, Deductions and Credits section and enter the amount as a business expense categorized under Other Miscellaneous Expenses.

To add Other Miscellaneous Expenses to your Schedule C in TurboTax Online you can follow these steps:

1. Within your tax return use the magnifying glass icon to search for Schedule C
2. Click the Jump to link
3. Click Edit for the line of work
4. Scroll down to Expenses and click Start or Edit if the category you want is shown
   • If you don't see the category you want listed click Add expenses for this work
   • Scroll to and mark the box for the category of expense you want to add - if you don't see it on the list, scroll down to the Less Common section and click the down arrow and show more until you do
   • Click Continue

[dandyandy357]

Thank you for the reply, but I'll admit I'm more confused now than I was previously.  

I didn't enter any of this in the Personal Deductions and Credit Section - turbotax only recapped my retirement contributions when I click through this section and am finalizing my taxes in general.  I only entered it in the Business Retirement section where it asked for 401k and SEP contributions.

I thought that if I clicked 'maximize my contribution' under the SEP entry, it would give me my 25% net business income (which it looks like it did successfully - 24,784).  But it sounds like 'maximize my contribution' doesn't work for the 25% employer contribution and it only works for determining my employee deferral (which I entered as 20,500 - the max limit)?   I thought SEPs didn't have elective deferrals, only employer contributions, but maybe I am mistaken?

And I shouldn't use the SEP entry to enter my SEP contribution?  That I should just be listing this under Other Miscellaneous Expenses?

What is the SEP contribution entry box for, if not to report my business SEP contribution?

Thanks for your help - it is greatly appreciated!!!

[AliciaP1]

You should use Other Miscellaneous Expenses because there is an issue in TurboTax that our tech team is looking at.  The SEP contribution entry in the business section doesn't reduce your business income for self-employment taxes as it should.  Reporting it as a Miscellaneous Expense is the workaround to treat the deduction correctly.  

@dandyandy357 

[dandyandy357]

Ok I think I've got it. 

I should click 'NO' - I am not making a 2022 SEP self-employed retirement contribution.

I should add my $20,500 elective deferral under Roth 401K (solo 401K).

I should add my $24,784 (25% of net income) under 'Other Miscellaneous Expenses' under Business Expenses and just label it SEP Employer Contribution. 

Is that all correct?  It just feels odd to not enter it where TurboTax is instructing me to enter it.  When I made the change as you recommended it DID increase my refund by several thousand dollars.

[dandyandy357]

I'm finding in other posts that SEP contributions should be entered in the SEP contribution section - not in the Other Miscellaneous Expenses section.  That post was updated 6 days ago.  Has the information changed since then?

[RobertB4444]

I'm showing that the SEP issue has been fixed so you should be able to enter the SEP contribution in the appropriate section instead of as a miscellaneous expense.  Just be sure that your program is updated before you do.

@dandyandy357 

[dandyandy357]

Thanks for the reply - I am getting a much bigger return (~$3000) when I enter it as a Miscellaneous Business Expense.  Am I able to keep it in that section on my Schedule C vs the SEP section like I was previously instructed?  

And yes I updated TurboTax.

Thank you

[dandyandy357]

I know that SEP employer contributions (self-employed) should reduce my Sole Proprietor Business income. 

- When I enter it under the Other Business Expenses - it does reduce my net income correspondingly (but then it reduces what I can max contribute under the SEP retirement tab). 

-When I enter it under the SEP retirement tab for maximize - it doesn't appear to reduce my net business income.

Is this still a flaw/error with the retirement section of turbotax?

[JulieS]

No, SEP contributions for a sole proprietor are a deduction from your total income, not from your self-employment income. This means your Schedule C net profit remains the same, but your taxable income is reduced. 

This is where you enter SEP contributions for a sole proprietor :

1. Select Federal on the left side menu.
2. Under  Wages & Income, scroll down to Other Business Situations, expand the section.
3. Find Self-Employment Retirement Plans, select Start or Revisit to the right.
4. Answer the first question No and the second question Yes.
5. On the screen Your Contributions, enter your information in the appropriate box. 
    

[dandyandy357]

Last question on this issue - I think I've gotten if figured out but maybe Turbotax is reporting it incorrectly on my summary sheet.

To recap : sole proprietor business. I contributed 20,500 and reported this as elective deferral under 'Roth 401(K)'.  On the next page I then used the SEP maximize function to get my 25% contribution from my employer (24,776).  

On the 'Your Retirement Contributions' summary, it shows already contributed 20,500 and maximum allowed to qualified plans 24,776.   On my Retirement Deductions Results near the end of my filing - it reports 'Amount to be contributed by plan due date' as 4,276 (which is 24776-20500).

I know my full SEP contribution is 24776 and I know that i can also contribute 20500 to my roth solo 401k.  why is it not separating the two?   I experimented and put in my 20500 into the Individual 401k elective deferral entry instead of the Roth - and it showed my Maximum allowed contribution was 45276 (20500+24776), which is what i would expect it to have said with my roth entry.

Is there some programming/technical error with the solo roth 401k entry?

thanks for help!  this is frustrating!

[AliciaP1]

There may be an issue with how the Your Retirement Contributions screen is showing the calculation.  To verify your SEP entry is maximized and deducted correctly you can review your Schedule 1 for your Form 1040 in either TurboTax Online or TurboTax CD/Download versions.

To do this in TurboTax Online you can follow these steps:

1. Within your return, click on Tax Tools on the black menu on the left side of the screen.
2. Click on Tools.
3. Click on View Tax Summary. 
4. Click on Preview my 1040 in the black menu bar on the left.
5. Scroll down to Schedule 1 Part II and look on line 16.

To do this in TurboTax Desktop you can follow these steps:

1. Within your return, click on the Forms icon in the upper right of the screen to switch to Forms mode.
2. In the menu bar on the left select Schedule 1.
3. Scroll through in the preview window and review line 16.

@dandyandy357