is TurboTax having system error on calculating solo 401K deduction?

[wallacelee32478]

for 2024 tax return, I have a net profit of $19,771 on self-employed income. I entered $18,374 solo 401k contribution and $3,652 profit sharing in Turbotax. I have no other 401k contribution from W2 income. However, when I check my Gross Income and MAGI, I don't see the full 100% solo 401k and employer contribution being deducted from the Gross Income. Is it a system error?

[dmertz]

"I have a net profit of $19,771 on self-employed income. I entered $18,374 solo 401k contribution and $3,652 profit sharing in Turbotax."

What you described results in an excess contribution.  Your total additions to the solo 401(k) (employee plus employer contributions) are not permitted to exceed net earnings from self-employment.  Net earnings are net profit minus the deductible portion of self-employment taxes, so with $19,771 of net profit, net earnings are $18,374.  Your employee elective deferral of $18,374 uses up all of your net earnings, leaving nothing left to contribute as an employer contribution and making the $3,652 profit-sharing employer contribution an excess contribution.

[wallacelee32478]

Thanks for pointing that out. I also learned that from other source. Thank you. But TurboTax still did not give me the full $18,374 contribution deduction. 

[dmertz]

Was any part of the employee contribution entered as a Roth contribution?  These are not deductible.

Examine TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet to see the calculation of the deductible amount.

[wallacelee32478]

No I I didn’t enter it as Roth contribution. I will check the worksheet and report back. Thank you!

[aviedel]

I have the same issue. I only entered a 1099 income, then entered individual 401k at different amounts it never changed tax due. 

[dmertz]

@aviedel , does line 31 of your Schedule C show net profit from self-employment?  If not, you might not have entered the Form 1099-NEC correctly or your expenses exceed gross income from self-employment and you have a loss.  Examine TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet to see the calculation of the deductible amount.

[aviedel]

@dmertz thank you for your reply. Yes, I have net profit of 14k. When I enter 13k solo 401k federal tax does not change and there is a minor impact on CA tax.  

[dmertz]

Note that the self-employed retirement deduction can only reduce income taxes, not other taxes like self-employment taxes.  If your taxable income on Form 1040 line 15 is already zero without the self-employed retirement deduction, that deduction won't reduce your overall tax liability.