Solo 401(k) Entries

[GLReneau]

My client has two Schedule C businesses. One of the businesses was quite profitable last year, the other barely. He is setting up a Solo 401(k) in the name of the profitable business and that business can, by the numbers, make the maximum retirement contribution including catchup. However, the Diagnostics indicates the program is including net income from both businesses for purposes of calculating the retirement contribution. How do I instruct the program to only take into account the net income from the one business (i.e., don't combine the two businesses) for purposes of the retirement contribution?

[sjrcpa]

I think there are commonly controlled entity rules that prevent that.

And/or affiliated service group rules that also prevent that.

Generally, each business has to be covered by the plan.

[GLReneau]

I think that's true. If commonly controlled, it appears the plan needs to take into account both businesses when calculating if under common control. What is a bit confusing is Diagnostics:

• The taxpayer's self-employed retirement plan deduction (Keogh, SEP, SIMPLE) was computed using the taxpayer's net self-employment income from all sources. The data indicates that the taxpayer may have self-employment income from more than one source. Net earnings from self-employment for purposes of computing the maximum SE retirement plan deduction may need to be adjusted to reflect the earnings of the business (or businesses) under which the retirement plan is established. Input fields are provided in the Schedule C, Schedule F, Partnership, S Corporation, Contracts and Straddles, Miscellaneous Income, and Adjustments to Income screens allowing you to exclude the earnings of certain activities from the SE retirement plan income base.

This may be the program saying "check to see if the Schedule C businesses are under common control as if they're not, you'll want to ignore the Schedule C's that aren't for purposes of calculating the contribution to the Solo 401(k), not sure. If anyone has insight on this, it would be appreciated.

[sjrcpa]

"This may be the program saying "check to see if the Schedule C businesses are under common control as if they're not, you'll want to ignore the Schedule C's that aren't for purposes of calculating the contribution to the Solo 401(k)"

I agree

[IntuitRebecca]

Hi there,

If you decide excluding the gross income from one Schedule C is appropriate, you can go to "Other Information" on screen 16, and check the box "Exclude from SE retirement plan deduction". 

You can also press F1 while on that input field to open help, which has more detail on the code sections and publications you may want to dig into regarding this decision. The diagnostic is just to alert you this option is available, if appropriate. 

- Rebecca