Thanks for this reference! I've been searching the code sections but didn't think to look at 404(a) specifically. Do you know if there's a clear distinction in the code between contributions for the owner vs employees? That's where I kept getting confused.

The key distinction is in Section 404(a)(8) which specifically addresses contributions by self-employed individuals. It essentially treats the business owner as both employer and employee for retirement plan purposes. For employees, the deduction is a business expense because you're paying it as the employer. For yourself, it's an adjustment to income on Schedule 1 because you can't technically "employ" yourself as a sole proprietor.

Which software are you using? I had the same issue with TurboTax last year and had to manually override it. The correct place is definitely Schedule 1, Line 16 for both portions of your solo 401k (employee and employer contributions).

Thanks for the insight from the payroll side! Do you know if there's a time limit for how long an employer has to issue a corrected W-2 once an error is pointed out? I emailed HR this morning but haven't heard back yet.

Employers should issue corrected W-2s as soon as they discover an error. There's no specific time limit in the tax code, but they should act promptly. Most companies will issue corrections within 1-2 weeks once the error is verified. If they drag their feet, remind them that failing to provide accurate tax documents can result in penalties from the IRS. Document all your communication attempts in case you need to show the IRS you tried to resolve this. If you don't get a response within 10 business days, that's when I'd recommend contacting the IRS directly for assistance.

This is potentially dangerous advice. OP shouldn't file as a statutory employee if they weren't actually one - that's misrepresenting their tax situation. Better to get the W-2 corrected or file Form 4852 with the correct information.

You're absolutely right - I should have been clearer. I'm not suggesting OP should file incorrectly! They should definitely get the W-2 corrected. I was just providing information about how statutory employee filing works IF they end up in a situation where they can't get it corrected in time for some reason and need to understand the implications. The best approach is always to have accurate tax documents. Thanks for the important clarification.

Thanks so much for mentioning this! What kind of records specifically did you need to keep that you weren't keeping? I'm trying to understand how much additional paperwork I'll be taking on if I make the switch.

For the operating agreement, you need formal corporate bylaws that outline how the business operates. You'll need to hold annual shareholder meetings (even if you're the only shareholder) and keep written minutes of those meetings documenting major business decisions. You'll also need to file Form 1120-S (the S-Corp tax return) annually, plus provide K-1 forms to all shareholders showing their share of profits. You must maintain completely separate finances - separate bank accounts, credit cards, and clear documentation of all money moving between you personally and the business. My big mistake was taking money from the business without properly documenting whether it was salary or distributions. The IRS sees this as co-mingling funds and can use it to invalidate your S-Corp status.

Yes, you can have multiple business activities under one S-Corp. The key is proper accounting and record-keeping to track income and expenses for each activity. You'll report everything on one tax return but you may need to use different business codes and complete certain schedules to properly categorize the different revenue streams.

That's really interesting! I hadn't considered cost segregation. Do you know roughly what percentage of the property value you were able to accelerate the depreciation on? And did you use a specialized firm for the study or was it something your regular accountant handled?

We were able to accelerate depreciation on about 25-30% of our property value, which made a substantial difference in our first-year deductions. The components included things like specialized electrical systems, certain fixtures, landscaping elements, and some interior components that could be depreciated over 5-15 years instead of the standard 39 years for commercial property. We used a specialized engineering firm that works alongside our accountant for the study. While it cost around $4,500 for our $750k property, the tax savings in the first few years more than covered this expense. Your regular accountant likely won't have the engineering expertise to properly classify all building components, so I'd recommend finding a firm that specializes specifically in cost segregation studies.

This is actually really good advice depending on your overall situation. My tax attorney suggested this exact approach, and it's worked out much better for me tax-wise. The corporation gets the full deduction for rent payments, and I can take advantage of depreciation plus potential appreciation personally. Just make sure to set a fair market rent to avoid IRS scrutiny.

Thanks for bringing up Form 4852! I actually didn't know about that option. So if I use my last pay stub to fill out this form, do I need to do anything special when filing my taxes? Like do I need to mail my return instead of e-filing?

You might need to mail in your return instead of e-filing if you're including Form 4852. Some tax software allows you to e-file with this form, but others don't. We ended up mailing ours to be safe. Also make sure you fill out Section 3 of the form explaining why you're filing a substitute W-2 and what efforts you made to get the original (like your phone calls and emails to the company).

Unfortunately that won't help in this case since they're trying to file 2022 taxes now in 2023/2024. They're already past the extension deadline. They need to file ASAP to minimize penalties.