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What is the maximum value of a "profit sharing contribution" for a solo 401k for a 1099 employee? I think is is supposed to be 25%, but TurboTax is limiting it to 20%.

Forum|Forum|7 years ago
June 1, 2019
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I'm using TT deluxe, and it appears that the program is limiting my deduction to 20% (based on the calculations in "A", "B", and "C" of part III of the Keogh, SEP, and SIMPLE Contribution Worksheet). I entered the 25% figure in the "Individual and ROTH 401k" section of "Business Deductions and Credits", but TurboTax is throttling that figure back down to 20%.

TurboTax Deluxe Windows

Best answer by dmertz

For the self-employed, a special calculation is required. Because your profit-sharing contribution itself reduces the amount on which your maximum profit-sharing is based, the result is that the maximum is only 20% of net income from self-employment. For example, if you net profit from self-employment reduced by the deductible portion of your self-employment taxes is $50,000, you end up with a maximum $10,000 profit-sharing contribution:

25% * ($50,000 - $10,000) = $10,000

IRs Pub 560 has a whole chapter on this calculation, Chapter 5:

https://www.irs.gov/pub/irs-pdf/p560.pdf

D

dmertzAnswer

Employee

For the self-employed, a special calculation is required. Because your profit-sharing contribution itself reduces the amount on which your maximum profit-sharing is based, the result is that the maximum is only 20% of net income from self-employment. For example, if you net profit from self-employment reduced by the deductible portion of your self-employment taxes is $50,000, you end up with a maximum $10,000 profit-sharing contribution:

25% * ($50,000 - $10,000) = $10,000

IRs Pub 560 has a whole chapter on this calculation, Chapter 5:

https://www.irs.gov/pub/irs-pdf/p560.pdf