Do salary deferrals (Traditional 401k Contribution) by s corp owners go anywhere on the 1040? I know they go on the W2 Box 12, but looking at the 1040 I don't see a place to show it. In one way I suppose that would be correct since no tax is owed because that money is never paid to the employee/owner because it's taken out of salary, but doesn't that make wages look incorrectly low on the 1040? Is the 1040 what the IRS looks at to determine if a reasonable salary was paid? S Corp owners are supposed to give themselves a reasonable salary and if they contribute the max (or any significant amount) to their 401k it looks like they received much less in salary with no where to show on the personal tax return that money was taken out of salary for this purpose. Am I missing where this is shown?
they do not show anywhere on your 1040. the box 1 wages should have been net of your contributions. thus it is not a tax deduction on your 1040. the. The only way the IRS would know if compensation was reasonable is by looking at the 1120S and compare it to other similar returns. on the 1120s the line 7 compensation is not reduced by your contributions. only employer matching contributions, if any, are reported on line 17.
The IRS gets a copy of your W-2 and would know to add the box-1 amount to the box-12 code-D amount to determine the salary that you were paid (if they should ever question your salary's reasonableness). With regard to determining the reasonableness of your salary, it's more likely that they would look at your Form 1120-S which would have all of the relevant information.
Great information, thank you both. Is it the same scenario if I were to make 401k contributions on the roth side? Those amounts still would not show on Form 941 Box 2, or W-2 Box 1, or the 1040, they would only show in box 12 of the W-2 with different code for Roth contributions (AA)?
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