How to make Turbo Tax deduct employer contribution for solo 401k?

Forum|Forum|2 years ago
October 5, 2023
3 replies
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I am self-employed with a solo 401k. I have input the Employee elective deferral contributions and the Employer Matching contributions into TurboTax, but only the Employee contributions are being deducted. The Employer contributions are not being deducted from my income and therefore not reducing my tax liability.

Both employee and employer contributions should be reported in Schedule 1 (Form 1040), line 16, but Turbo Tax seems to only include the employee portion in the calculation. Is there a way to bypass this? Enter the employer contribution portion somewhere else in the expense or something?

Thanks!

TurboTax Self Employed Online

Best answer by dmertz

TurboTax will limit your self-employed retirement deduction to the amount that you are permitted to contribute, based on your net earnings from self-employment. Amounts contributed in excess of the permitted amount are subject to a 20% penalty on Form 5330. TurboTax does not support Form 5330.

Review the calculations on TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet to see the maximum permissible contribution.

Anonymous_

@dmertz ?

dmertzAnswer

Review the calculations on TurboTax's Keogh, SEP and SIMPLE Contribution Worksheet to see the maximum permissible contribution.

favonianzsAuthor

Thanks @dmertz . Turbo Tax did calculate the maximum contribution based on my self-employment income. Is that maximum allowed the sum of employee solo 401k contribution, Roth contribution, and employer match contribution?

Eg. For an income of $15k, turbo tax calculated the max. allowed contribution is $14k. Does this 14k include only the employee contribution to 401k and Roth 401k, or does it include the employer match/profit sharing contribution as well?

Thanks!

dmertz

From net profit on Schedule C of $15,000 you must subtract the deductible portion of self-employment taxes, $1,060, leaving $13,940 as the maximum permissible total contribution. Because this is less than the maximum amount of elective deferrals, this is all allocated to elective deferrals (or Roth contributions), leaving nothing to contribute as an employer contribution.

compasslocal

When I enter employeer contributions it is not lowering my self employment tax. I think people have this expectation but in reality you can only reduce your income after self employment tax.

dmertz

"When I enter employee contributions it is not lowering my self employment tax."

That is correct behavior, so nothing about this behavior needs fixing. The tax code does not permit self-employed retirement contributions to reduce self-employment tax.

compasslocal

I think I was steered wrong then about the benefits of a solo 401k. Not being able to reduce the self employment tax is a bummer. Either way. For every 10k I contribute, turbo tax is only reducing my taxes by $990. It should reduce by at least 22% I would think.