We use TT Home & Business to file our taxes. I have a one member LLC. We opened a Solo 401(k) so that both of us could make contributions. We're both over 50 so we should each be able to contribute $26,000 as elective contributions as long as our earnings are $26,000 or more, plus company contributions, the max determined by the company's income. This is how I understand the rules to be, if I'm wrong please let me know.
Apparently, I have to issue a W2 to my wife for her to be able to contribute to the Solo 401(k) even though we file jointly and the company's income is reported as our own. Is this correct?
I made a copy of our 2021 TT file to see how all this affects our bottom line and am trying to figure out how to allow my wife to contribute her maximums. I've issued her a W2 for $100,000 but TT says the max she can contribute to the Solo 401(k) is $15,852. It doesn't seem to matter how much the W2 is for, that number doesn't change even if the W2 is less than $15,852. What am I missing?
Right. She needs compensation from the company to be able to contribute to the 401(k), either compensation reported on a W-2 (which requires you to withhold and pay the corresponding payroll taxes), or income from self-employment.
Because the company is an LLC, things are a bit more complicated than tagteam described. If you live in a non-community income state you would have to make your wife a partner in the LLC, file a partnership tax return (Form 1065) and issue Schedules K-1, in which case neither of you would report on Schedule C since you would not be able to treat the LLC as a disregarded entity. If you instead live in a community property state, you have do have the option to make her a co-owner of the LLC and treat the LLC as a disregarded entity allowing you to split the reporting onto a separate Schedule C for each of you in proportion to the ownership interest in the company, giving each of you income from self-employment from which to contribute to the 401(k).
So, both of you could make contributions if you follow the guidelines and you each submit a separate Schedule C (i.e., file as a qualified joint venture).
I will page @dmertz for further input.
Right. She needs compensation from the company to be able to contribute to the 401(k), either compensation reported on a W-2 (which requires you to withhold and pay the corresponding payroll taxes), or income from self-employment.
Because the company is an LLC, things are a bit more complicated than tagteam described. If you live in a non-community income state you would have to make your wife a partner in the LLC, file a partnership tax return (Form 1065) and issue Schedules K-1, in which case neither of you would report on Schedule C since you would not be able to treat the LLC as a disregarded entity. If you instead live in a community property state, you have do have the option to make her a co-owner of the LLC and treat the LLC as a disregarded entity allowing you to split the reporting onto a separate Schedule C for each of you in proportion to the ownership interest in the company, giving each of you income from self-employment from which to contribute to the 401(k).