how to enter an llc partnership 401k contribution in turbotax home and business

[dansawyeror]

I am using TurboTax Home and Business. I am a partner in an LLC with a K1. The K1 does not show my 401k contribution explicitly on the form, however it does reference it in the notes. What menu steps do I take to get to the proper form to enter the 401k contribution? Is it as simple as identifying the correct form and manually entering the information? If so what is the correct form? 

[dmertz]

Any retirement contributions made through the partnership should have been reported on Schedule K-1 (Form 1065) with code R in box 13 and your net earnings from self employment supporting the contribution reported with code A in box 14.  Contact the preparer of the Schedule K-1 for a correction.

(If the K-1 is Schedule K-1 (Form 1120S) is from an S corp, it's not from a partnership and your contribution should have been reported in box 12 on your W-2 from the S corp and would be entered only in box 12 of TurboTax's W-2 form.)

[dansawyeror]

Thank you. I went round and round with the tax person on this and he refused to budge. The best I got was a note of the K-1. Is is not an S-Corp, there is no W-2. What form can I use to report the contribution?   

[dmertz]

What is the K-1 preparer's reason for not making the entries in boxes 13 and 14?  To make any contribution to the 401(k) through a partnership you must have income from self-employment reported on your tax return and pay the associated self-employment taxes.  If you have no self employment income, any contribution to the 401(k) is an excess contribution.  Excess contributions can jeopardize the qualification of the entire 401(k) plan.

If you truly received income from the plan that qualifies as self-employment income and the K-1 preparer refuses to properly prepare the K-1, about all I can suggest is to make the necessary box 13 and box 14 entries, mail your tax return with an explanation statement regarding these missing entries on the Schedule K-1 and let the IRS sort it out, hopefully in your favor.

[dansawyeror]

Thank you again for your reply. I realize as I write this the general assumption could be the contribution is part of a regular payment. It is not, it is a lump sum catch up contribution. I should have put that in the question title and description. 

The business is an LLC partnership. As part of that each of the partners receive guaranteed payments. I withhold contributing until the 4th quarter and then direct finance to make a lump sum catch up contribution to a simple 401k plan. In the strict sense the payment shows up in the books as a guaranteed payment. The payments are not part of regular withholding. The plan is a qualified plan and does allow lump sum contributions. 

The argument as I understand it is because the payment is entered as a guaranteed payment there is no journal entry to cause his process to recognize it as a 401k contribution. 

Is there a form to record lump sum contributions. 

[dmertz]

The portion of guaranteed payments representing payment for services rendered if you are a limited partner or the entire amount of guaranteed payments if you are a general partner is required to be reported with code A in box 14 as well as in box 4.  The amount of guaranteed payments reported with code A in box 14 is subject to self-employment tax.

https://www.irs.gov/faqs/small-business-self-employed-other-business/entities/entities-1

The 401(k) contribution is required to be shown with code R in box 13.   The code A amount in box 14 is used in determining the amount that you are permitted to contribute to the 401(k).  The fact that the amount was a lump sum deposit into the partnership's 401(k) plan has no bearing on the reporting requirement.

[Critter]

Are you saying you contribute to a SOLO 401K outside of the partnership ? If so your original posting would make sense and the K-1 without a box 13 entry would also make sense.

To get to the section where you can enter information for your individual 401k contribution, use these steps:
• On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
• This opens a box where you can type in “self-employed retirement” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
• The search results will give you an option to “Jump to self-employed retirement”
• Click on the blue “Jump to self-employed retirement” link and enter your information

[dmertz]

As far as I know it is not permissible for a partner to contribute to a retirement plan independent of the partnership based on net earnings from self employment from the partnership.  In the case of a partnership, the plan must cover all eligible individuals of the partnership and contributions to the plan must be reported with code R in box 13.

[dansawyeror]

I have found two worksheets that seem to apply, IRA Contribution Worksheet and Keogh, SEP, Simple Worksheet. It will take a day or so to gather the information to complete these. I will follow up when this is complete. 

[dmertz]

The IRA Contribution Worksheet does not apply unless the contribution was a personal contribution to an IRA.  A 401(k) is not an IRA.  It's certainly possible to have someone or some entity make a deposit into an IRA on your behalf, like direct deposit of your pay, but it would not be a contribution to an employer plan. 

The Keogh, SEP and SIMPLE Contribution Worksheet applies and gets its input from the K-1 Additional Info for a box 13 code R entry and from Schedule SE in response to the box 14 code A entry.  In the absence of the box 13 code R entry you can get the same result by entering the 401(k) contributions in the Self-employed Retirement section of TurboTax, but the contribution is still only appropriate if the 401(k) is established under the partnership (in which case it should be shown with code R in box 13).