Turbo Tax does not allow me to add full self-employment retirement deduction

Forum|Forum|2 years ago
March 30, 2024
1 reply
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Hello,

My wife has an LLC, and works as self-employed and had a net profit of 11,500 in 2003 plus 2000 in January 2024. I am able to fill in the "Self-Employment Retirement Plans" part of the online tool, but whenever I add the full amount of 13,500 to the solo-401k line the tool says that it has an excessive contribution, even though the limit should be 22,500. It also sets the maximum amount to 10,500, instead of 11,500. Why is that? I am using Premium version.

TurboTax PLUS Online

Best answer by dmertz

First, if your wife's business uses the cash method of accounting, amounts received in 2024 are 2024 business income, not 2023 business income.

Second, the maximum solo 401(k) contribution in this case is net profit minus the deductible portion of self-employment taxes. For a self-employed individual with net profit of $11,500 and who does not have compensation from another employer that would result in compensation reaching the Social Security wage base, the maximum deferral to the solo 401(k) would be $10,687.

dmertzAnswer

Employee

First, if your wife's business uses the cash method of accounting, amounts received in 2024 are 2024 business income, not 2023 business income.

gawdiaq23Author

Why is the maximum 10,687?
There's nothing in the IRA publication mentioning that number.

Publication 560 (2023), Retirement Plans for Small Business | Internal Revenue Service (irs.gov)

One Participant 401k Plans | Internal Revenue Service (irs.gov)

VolvoGirl

Employee

First of yall the 2,000 in Jan 2024 goes on your 2024 return next year. So for 2023 you have a Net Profit of 11,500. You have to take off 1/2 of the self employment tax. If you have self-employment income you can only contribute up to your net profit reduced by the deduction allowed for the ER portion of your self-employment taxes. The 1/2 SE Tax amount will be on Schedule 1 line 15 which goes to 1040 line 10. The self employment tax is 15.3% SE tax on 92.35% of your Net Profit.

The self employment tax on 11,500 is $1,626. 1/2 of that is $813.

$11,500 - 813 = 10,687.