Where to enter retirement plan startup costs

Forum|Forum|3 years ago
January 7, 2023
3 replies
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I recently established a 401k plan for my small business, and I believe I qualify for the corresponding tax credit (form 8881). When I get to "Pension plan startup costs" in the section "Other Business Credits," I get an error that says "You have not entered any pension plan startup costs." Where (under business income and expenses) do I enter those costs?

Best answer by dmertz

If you are using TurboTax Home & Business, TurboTax won't present the option to enter Employee Expenses where you would enter plan startup costs. To qualify for this deduction or credit, you must have employees (other than yourself as self-employed), indicated in the Business Profile.

https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit

Anonymous_

Employee

I will page @dmertz who can most likely answer your question.

dmertz

Employee

You must first enter the startup cost as a business expense under All other expenses (where all expenses other than vehicle expenses, depreciation and home office expenses are entered).

smallbiz103Author

Thanks for trying to help! I don't see a category labeled "All other expenses" (I'm on the Mac desktop version if it matters), but I do have "Other Common Business Expenses," which appears between "Business Vehicle Expenses" and "Home Office Expenses" under "Business Expenses" (depreciation seems to go under "Business Assets," which is right below "Business Expenses"). Anyway, "Other Common Business Expenses" leads to a page with 16 subcategories:

Advertising
Business Travel
Commissions
Communication
Contract Labor
Insurance Payments
Interest Payments
Legal and Professional Fees
Meals
Office Expenses
Rental Expenses
Repairs and Maintenance
Supplies
Taxes and Licenses
Utilities
Other Miscellaneous Expenses

Under the last category -- "Other Miscellaneous Expenses" -- one of the examples is "Pension plan administrative costs (not contributions)," which sounds promising. However, the "Other Miscellaneous Expenses" page only has spaces for "Description" and "Amount." I've tried a few different descriptions (like "Pension plan startup costs" and "Pension plan administrative costs"), but when I then go to "Other Business Credits" and to "Pension plan startup costs," I still get the same error message, namely, "You have not entered any pension plan startup costs." Am I entering my expense in the wrong category? Or am I using the wrong description? Thanks again!

dmertzAnswer

Employee

https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit

RWBick777

I was able to do this by working it backward from form 8881. Create and open 8881 up in the "forms" section. Up top on the form it has a box that links to Sched C, F or form 4835 depending on what type of business you operate. I clicked on the Sched C box (sole proprietor) and then hit QuickZoom to go to that form. There I was able to enter my startup costs, as well as claim a $500 credit for creating a 401k with a automatic enrollment option with the plan. It places the qualified startup costs automatically into the business expense form.

Note that Turbotax program the finalized 8881 will not be available for e-filing until 3/6/2024