Thanks for this insight. The discretionary nature is really appealing since her income can vary quite a bit. Do you know if there's a deadline for deciding whether to make a profit sharing contribution for the current tax year? Like could we wait until March 2025 to decide about 2024 contributions?

You can actually wait until your S Corp's tax filing deadline including extensions to make the profit sharing contribution for the prior year. So for 2024 contributions, if your S Corp files for an extension, you could have until September 15, 2025, to make the decision and the actual contribution. This flexibility is one of the biggest advantages of profit sharing plans for professionals with variable income. Just make sure the plan documents are amended before the end of the plan year in which you first want to make profit sharing contributions. The plan has to allow for profit sharing before you can actually make those contributions.

Not necessarily a compliance issue. In many medical groups, the LLC sponsors the 401k plan but the participating doctors are technically employed by their own S Corps. The plan documents just need to specifically allow for this arrangement. It's super common in group practices.

Would I have to pay taxes on the conversion from after-tax to Roth though? I'm confused about how this is different from just doing a backdoor Roth IRA.

You only pay taxes on the growth between the time you make the after-tax contribution and when you convert it to Roth. If you convert frequently (some plans even allow automatic conversions), this tax amount is minimal. The main difference from a backdoor Roth IRA is the amount you can contribute. A backdoor Roth IRA is limited to $7,000 per year (2025 limit for those under 50). With the mega backdoor Roth, you could potentially contribute up to around $43,500 more (the exact amount depends on your plan and the total annual 401k limit of $70,000 for 2025 minus your regular contributions and employer match).

Great point about the flexibility! But don't you lose a lot to taxes on dividends and capital gains compared to Roth growth that's completely tax-free?

Is there a dollar threshold for when something should be depreciated vs just expensed? Like if my desk was only $300, do I still need to depreciate it or can I just deduct it all at once under supplies/furniture?

There's actually a "de minimis safe harbor election" that lets you expense (rather than depreciate) items that cost less than $2,500 per item or invoice. So for your $300 desk, you could absolutely deduct it all at once instead of depreciating it over several years. Many small business owners don't know about this and end up creating unnecessary complexity by depreciating smaller items. For slightly larger purchases, Section 179 expensing is another great option that lets you deduct the full cost of qualifying equipment in the year you put it into service, rather than depreciating it. The limits are quite generous for small businesses (up to $1,160,000 for 2023).

Simplified method is WAY easier but usually results in a smaller deduction in my experience. I tracked both methods for two years and regular method gave me about $1,200 more in deductions. Depends on your situation though.

Thanks for the recommendation! I've heard good things about TaxAct from a coworker too. Did you find their interface easy to use? I'm not super tax-savvy and need something that explains things clearly.

Their interface is pretty straightforward and they explain tax concepts in plain English. They use a question-based approach that helps catch things like HSA contributions without you needing to know which specific forms are required. The help sections are quite clear with examples, and if you get stuck, they have decent customer support through chat. For someone who isn't tax-savvy, they offer good guidance without overwhelming you with jargon. Their review system also catches common errors before you file.

FreeTaxUSA is such an underrated option. Been using them for 4 years now and they handle everything correctly including my rental property and side business. None of the upselling garbage that TurboTax does either.

Can you explain more about how to document this? Like what kind of proof would you need to show the IRS that your education is "ordinary and necessary" for your business? I'm taking some digital marketing courses and want to deduct them for my Etsy shop.

Documentation is crucial. I keep a business education folder with: course descriptions/syllabi highlighting specific skills taught, a written explanation connecting each course to specific aspects of my current business operations, evidence that these skills are industry standards (like professional association recommendations), and a log tracking how I've implemented these skills in my business. For your digital marketing courses and Etsy shop, save the course descriptions, then create a document explaining how each marketing technique directly applies to growing your existing Etsy business. Track your marketing metrics before and after implementing what you learn to show business purpose. If similar businesses commonly use these marketing techniques, note that as evidence that the education is "ordinary" in your field.

That's a really good point about credits vs deductions! I think business expense deductions don't have the same caps as education credits though? At least that was my understanding. Can you take BOTH the business education deduction AND education credits for the same expenses?