Updated for 2021 Tax Returns!
It’s not too late to make contributions to your Solo 401k plan for 2021. And remember to claim the Solo 401k deductions on your tax return. Get it while you still can! Solo 401k contributions are tax deductible. Don’t miss out on this chance to claim that contribution and pay less in taxes.
Follow this link for the information you need about contribution limits for the tax year 2021. If you need additional information about extended tax filing deadlines, follow this IRS link. But let’s get to the specifics involving your Solo 401k.
More Time and Few Forms to File
Your Solo 401k retirement plan is tax deferred. Therefore, it doesn’t file a tax return. There is often no direct filing requirement for your Solo 401k. Only after the Solo 401k Plan balance exceeds $250,000 in assets (including all liquid cash and non-liquid assets), is there a simple filing requirement for IRS form 5500-EZ. Was your Solo 401k balance was less than $250,000 on December 31st of last year? If so, you do not need to IRS Form 5500 EZ (unless the plan was terminated).
There are little or no filing requirements for your Solo 401k. However, you still need to understand the implications of being self-employed. One benefit is maximizing the tax-exempt contributions to your small business retirement account.
By the time your financial sophistication reaches this level, you likely have a CPA preparing your taxes. Or you might use a payroll company. But if you enjoy digging into the numbers and knowing that you’ve maximized your tax deduction, here is what you need to know about claiming both of your Solo 401k contributions on your tax return.
Claim Solo 401k Contributions on Your Tax Return for a Pass-Through Business
Having the correct mindset is important here. Remember that you are making two distinct tax calculations. Calculation 1 determines the net earnings for your business. Calculation 2 determines how much tax-exempt contributions you can make to your Solo 401k. Although these are separate calculations, they are dependent on each other. Think of it this way. You made your own retirement contribution. Your employer (your business) made a separate retirement contribution to your personal retirement account.
Is your business a pass-through structure (sole-proprietor, LLC, partnership)?
If so, submit both contributions to the IRS on your personal tax return. For these businesses, your income is calculated using Schedule C. Report the employer and employee contribution to the Solo 401k on Schedule 1, line 15 of the IRS tax form 1040.
Important Distinction for Claiming Contributions
Important note: you do not report the employee portion of the Solo 401k contribution on Schedule C. The purpose of Schedule C is calculating your business expenses before determining your earned income from the business.
For pass-through businesses, the employee and employer portion of the Solo 401k contribution is reported on line 15 of Schedule 1. There is a direct connection from Schedule C to Schedule 1. For example, you report business (earned income) from Schedule C on line 3 of Schedule 1. Then, as part of the Schedule 1 calculation, the employer contribution to your Solo 401k becomes part of your adjusted income. Afterward, that is subtracted out of your taxable income. Finally, report adjusted income on line 8a of Schedule 1 on your 1040 form (see line 8b subtraction calculation).
Get Expert Help to Do it Right
Always have your CPA or tax preparer check your calculations. Your CPA is the most qualified person to guide you where to claim your Solo 401k contributions on your tax return. The IRS provides this example for calculating your self-employed retirement plan contributions and deductions.
Claim Solo 401k Contributions on Your Tax Return for an S-Corporation
Is your business a corporation? If so, business income and contributions do not pass directly to your personal income tax return. There is a different tax reporting process that requires different tax forms.
Most, but not all, corporations are separate business entities. Therefore, they do not allow earned income to pass directly through to your personal income tax return. An important exception is S-corporations. For an S-corp, business income passes through to owners/shareholders. You’ll then report that income to the IRS as taxable. However, S-corporations do have other tax obligations as a corporate entity. This requires the S-corporation to file a tax return separate from the business owners.
The S-corporation files with the IRS using Form 1120-S. List the business portion of the Solo 401k contribution on line 17 (for 2021 returns). Additional supporting IRS forms are generally required for S-corporations. Some of these are Form 5500, or Form 5500-SF.
Personal Contributions to the Solo 401k
Each year, your company provides you a W-2. IRS Form W-2 documents your wages earned. As an employee of the corporation, report your personal contribution to the Solo 401k in box 12 of your W-2. Box 12 can contain several types of compensation or reductions from your taxable income. The IRS identifies different categories of compensation and reductions with different single or double letter codes. The single letter code for a 401k deduction is “D.” Your salary reducing portion of the Solo 401k contribution has already been subtracted from your taxable amount that appears in box 1 of your W-2.
Summary of where to report the two Solo 401k contributions for S-corporations:
- Form 1120S, line 17 = Employer contribution.
- W-2, box 12 = Employee contribution.
And again, always work with your CPA or tax advisor to ensure the contributions are calculated and shown properly on your tax return.
Remember Roth contributions are after-tax. Therefore, they aren’t listed on your personal or business tax return. Yes, it might seem counterintuitive to put money in a retirement plan and not claim it anywhere. However, you aren’t asking the government for a tax deduction for these contributions. As such, they aren’t listed anywhere specifically on your tax return.
As an individual (not the corporation), you report the information from the the W-2 on your personal 1040 tax return. With the corporate business structure, both the corporate and personal claims for the Solo 401k contributions are calculated within the corporate tax filing.
When you have full control of your retirement account with a Solo 401k, you can expect your maximum tax-exempt contribution to increase every year, which it already has for 2020.
Have questions about growing your retirement account? The 401k experts at Nabers Group will help you get your retirement funds into your control, where they belong.
Hi there. Just want to point out that I think you meant to write line 17, NOT line 23 in the following excerpts of your article:
“The S-corporation files with the IRS using Form 1120-S. List the business portion of the Solo 401k contribution on line 23.”
“Summary of where to report the two Solo 401k contributions for S-corporations:
Form 1120S, line 23 = Employer contribution.
W-2, box 12 = Employee contribution.”
For S-Corps, on the 1120-S Form, the line on which pension, profit-sharing plan contributions get reported is LINE 17. On C-Corp 1120 returns, it is line 23.
I figure you know this and that is it is just an oversight.
Thank you, Rachel! You are correct. On the 2019 IRS form 1120S, the line to denote “Pension, profit-sharing, etc., plans” is line 17. Thank you for catching that!
I’m still a little confused. I’m just regular self employed and using TurboTax. Whenever I’ve entered my deductions for solo 401, I think it’s always been in the business section. so I should of also been entering it into the personal side too?
I’m Guessing this is why I would test what I would owe if I maxed it out and my taxes would barely reduce??
Hi Mark, where you claim contributions will depend largely on your business structure. Always make sure you’re working closely with your accountant (even if you use TurboTax, hiring someone for a “2nd look” can be so valuable as you’re getting rolling with your Solo 401k!). Making contributions should reduce your taxes, so again – check in with your accountnant here!
Can just employee contributions (including after-tax) be made up to the $63,500 limit (over 50) and no employer matching?
Hi Barry, not all Solo 401k plans allow that feature but our plans (Solo401k.com) do! You can choose to make just voluntary after-tax contributions and skip the profit sharing contribution with our Solo 401k.
Do I need to file form 5498 if I have solo401k plan?
The Solo 401k does not require a 5498 filing!
I’m an LLC S-Elect, and I’m very confused about where SoloK contributions show up on the w-2. I have a SoloK and I contributed 10K in CY 2020. I am not sure how to tell my payroll company to report it on the w-2, and they are not sure either. Sadly, my accountant is not responsive (time for a new accountant). Also, am I supposed to be paying taxes (Fed/State/FICA) on the 10K? Lost and need help…
Hi Emily – couple resources that may help here:
Blog post: What to Tell Your Payroll Company About the Solo 401k
CPA Resources list: These CPAs understand the Solo 401k and will be happy to help make sure you’re on track!
I am self employed individual (no LLC). It sounds like you are suggesting that not to report the employee portion of the Solo 401k contribution on Schedule C and report both the employee and employer portion of the Solo 401k contribution on line 15 of Schedule 1.
In Schedule C , should I report the employee and employer portion of the Solo 401k contribution as expenses or not? If so then just the employer portion or both employer and employee portion and which lines?
Hi Mohit, you may report the employer profit sharing contribution on Line 19 as an expense, but then you would NOT list is on Line 15 of Schedule 1. Always work closely with your tax professional, especially if this is your first year claiming contributions to a Solo 401k plan. Your CPA is there to guide you!
Greetings. I’m a little confused here about deductions.
As a self-employed person with a solo 401k, if you deduct expenses (such as Internet bills and health insurance premiums), then isn’t the profit–from which you base the contribution–then that much lower? (And then isn’t the 401k contribution–and the write-off from that–lower?)
Wouldn’t NOT deducting business expenses result in a bigger solo 401k deduction and contribution?
Even though roth solo 401k contributions are not deductible and do not appear on your business or personal tax returns, don’t they still need to be reported on your W-2 in box 12 as code “AA”? Information above makes it sound like roth contributions are not reported at all.
Yes, that’s correct and that is the correct code to use as well.
I have a C corp and solo 401k. I made a Trust with my solo 401k. It has EIN.
1. Do I still need to write employee portion on W2 ?
2. Do I still need to report my emplyer portion on 1120?
3. Do I just write it off from my business expense?
How do I report them?
I usually use Turbo Tax.
I’m planning on opening a 401K and maxing it out. I don’t own a business. Would I still get credit for the 19500 that I’ll be putting?
Hi Juan! You’ll need to earn self-employment income to qualify for a Solo 401k. It’s OK if you don’t have a formal LLC or corporation, but some self-employment business is required. In order to make contributions, you have to demonstrate earnings in your small business (even as a freelancer or contractor). Take this quiz to see if you qualify!
I’ve a General Partnership (not a corp. or LLC taxed as a partnership, nor a Limited Liability Partnership) w/ myself as the active partner & another passive partner. Do “employer contributions” for myself (active) also need to be entered in the partnership’s 1065 (and/or Sch. K, Sch. K-1, etc.). Thank you!
Great question, Adonis. General Partnerships file a 1065, so you’d still calculate your contributions based on Line 14 of the Schedule K-1 for your partnership return. The Partnership would notate the contributions (tax-deductible) on Line 19 of the 1065 (Employee benefit programs)
And a follow-up Q: my tax software is asking for the CA partnership return: “Does this partnership have a beneficial interest in a trust or is it a grantor of a trust?”. Is that a Yes since I’ve created a trust (w/ Nabers/Solo401k.com) to “manage” the 401k on behalf of my partnership? Thanks!
Another great question, Adonis. No, the partnership does not have a beneficial interest in the trust. A Solo 401k is a retirement trust (which is a different usage of the term “trust” in this scenario). The 401k trust should simply be treated as a company retirement plan for the partnership.
If I paid myself, say $40,000, on a W2 in 2022 (from an S-corp), Can I contribute all $40,000 to the 401k OR can I only contribute the $40,000 less the social security and medicare taxes I paid. In other words, can box 3 = box 12 or does box 12 have to be less (assuming 100% of salary contributed.) Box 1 will be zero, that much I get!