One thing nobody has mentioned: make absolutely sure your Solo 401k plan DOCUMENT allows for the flexibility you're trying to use. Some plan documents specifically require deferrals to be deposited within a certain timeframe after being withheld. I learned this the hard way last year when I assumed I had until my tax filing deadline, but my specific plan document (from a major provider) required deferrals to be deposited within 30 days of the end of the month in which they were withheld. This was more restrictive than what the IRS/DOL would have allowed! Check your actual plan document before making any assumptions about deadlines.

CPA here specializing in small business retirement plans. This thread has covered most of the key points, but I want to emphasize something critical that could save you headaches down the road. The IRS distinction between "elective deferrals" and "employer contributions" is crucial for S-Corps. Your $22,500 employee deferral must be reflected as reduced wages on your 2024 W-2 (Box 1 should show $81,500 instead of $104,000 if you defer the full amount). This creates the paper trail showing the deferral happened in 2024. However, here's what many miss: if you haven't actually moved the money to your 401k account yet, you need to be very careful about cash flow and business expense timing. The IRS could potentially challenge whether you had "constructive receipt" of that income if the funds sat in your business account for months while you used them for other business expenses. My recommendation: even if your plan document allows flexibility, try to deposit the deferred funds by January 31st at the latest. This shows good faith compliance and avoids any potential constructive receipt issues. The employer profit sharing contribution can definitely wait until your tax filing deadline, but treat the employee deferrals with more urgency. Also double-check that your payroll system is properly coding the deferrals for your W-2 - Box 12 should show the $22,500 with code "D" for elective deferrals.

What tax software does your sister-in-law use? If she's using something decent like TurboTax Business or H&R Block Premium, they usually flag this kind of issue during preparation. I'm surprised they've gotten away with this for so long without the software warning them.

Your instincts are absolutely right to be concerned about this. An S-Corp with $75-250k in annual profits and zero payroll is basically a textbook case of what the IRS looks for in audits. The "reasonable compensation" requirement isn't optional - it's mandatory. Your sister-in-law's tax preparer either doesn't understand S-Corp rules or is being negligent. After 12 years of this, the potential back taxes, penalties, and interest could be substantial. I'd strongly recommend you stay away from any involvement with this business until they fix the payroll issue. Even basic bookkeeping could make you look complicit if this gets audited. The risk just isn't worth it, especially when there are clear red flags that this isn't being handled properly. She really needs to find a new tax professional who understands S-Corp compliance requirements and can help her get this sorted out before the IRS catches up with them.

Dont forget to think bout qualified housing fringe benefits where employers can provide housing tax-free to employees if its on premises and for the employers conveneince. We do this for our properrty managers and maintenance staff and its a huge benefit that doesnt get taxed. Also look at 'de minimus' benefits the IRS allows for temporary housing when relocating employees. I think its 30 days thats considered non-taxable if its for a job-related move.

One thing to keep in mind is the reporting complexity difference between these benefits. Housing assistance programs require careful tracking of fair market values, proper W-2 reporting across multiple boxes, and often quarterly adjustments if you're providing ongoing housing subsidies. Compare that to signing bonuses which are straightforward - just report as wages with standard withholding. Stock options have their own complexity but at least the rules are well-established and most payroll systems handle them automatically. I've found that the administrative burden of housing programs is often underestimated. You need systems to track occupancy, calculate fair market rent values annually, handle employee turnover mid-program, and deal with various state tax implications that can differ significantly from federal treatment. That said, if you're in a competitive hiring market for specific roles, housing assistance can be a real differentiator that candidates value more than equivalent cash compensation. Just make sure you budget for the ongoing administrative costs and have clear policies for edge cases like employees who relocate again or change roles within the company.

A couple warnings from someone who tried this and messed up: 1. Don't underestimate the payroll tax deadlines! Missing them = penalties. 2. If your spouse is gonna contribute to a 401k make sure ur plan docs are set up right first. We had to redo everything cuz our plan wasn't properly established. 3. Make sure the pay is reasonable. We initially set my wife's salary too high for the admin work she was doing (trying to max 401k contributions) and our accountant warned us this was a red flag. 4. State requirements are different! Federal might exempt spouses from FUTA but your state might require unemployment ins payments.

Thanks everyone for the detailed responses! This is exactly the kind of real-world experience I was looking for. A few follow-up questions: @Zoe Papadakis - When you mention establishing a regular 401k plan instead of Solo 401k, does that mean I'd need to file Form 5500 right away, or only once assets hit $250k? And are there minimum contribution requirements for myself as the employer? @AstroAdventurer - The $7,800 tax savings sounds significant! Can you break down how that worked out? Was that mainly from reducing your self-employment tax by shifting income to employee wages? @NeonNova - The audit documentation point is really important. Did the IRS question the legitimacy of the work itself, or were they more focused on whether the compensation was reasonable? I'm leaning toward using a payroll service like Gusto based on what I'm hearing about the complexity of tax deadlines. Better to pay $40/month than risk penalties! One more question - has anyone dealt with quarterly estimated tax implications? If I'm paying my wife a salary, I assume that reduces my self-employment income and might affect my quarterly payments?

Another thing to consider - if you have zero activity, you can file for "Administrative Dissolution" in many states which is much simpler than the full process. Basically you stop filing annual reports with the state and they eventually dissolve you automatically. Downsides: 1) Takes longer 2) You might get hit with penalties before dissolution 3) Still need to file final federal returns But some people find it easier than the formal process.

I went through this exact same situation last year with my dormant S-Corp. One thing that really helped me was creating a dissolution timeline and checklist before starting anything. Here's what worked for me: 1. First, I verified all prior year returns were filed (as Hassan mentioned - super important!) 2. Filed Form 966 within 30 days of formally adopting the dissolution plan 3. Used 2023 forms for my final 1120-S and K-1, clearly marked "FINAL RETURN - SHORT TAX YEAR" at the top 4. Attached a brief statement explaining the dissolution date and why I was using prior year forms The key thing I learned is that the IRS is very familiar with this timing issue. As long as you're clear about what you're doing and why, they handle it routinely. One tip: even though there was zero activity, I still had to complete all the required sections of the forms. Don't leave anything blank - put zeros where appropriate and make sure all signature lines are completed. The IRS can reject incomplete forms even if the amounts are all zero. Also double-check your state requirements! Some states want you to file state dissolution paperwork before the federal forms, others don't care about the order.