LLC taxed as S-corp: How do I calculate my tax obligation when contributing 10k to employer portion of solo 401k?

What you're looking at is a great tax planning opportunity! When your LLC is taxed as an S-corp, the employer contribution to your solo 401k reduces your business's net profit before that income passes through to your personal return. Basically, that $10k employer contribution is a business expense that reduces the business profit that would otherwise flow to your Schedule K-1. This means you'll save on income taxes for that $10k (whatever your marginal tax rate is) AND you'll avoid self-employment taxes on that amount too. So if you're in, say, the 24% federal tax bracket, that $10k contribution could save you roughly $2,400 in federal income tax, plus any state income tax savings, plus you avoid the 15.3% self-employment tax that would apply to distributions. It's a triple win - you reduce current taxes, build retirement savings, and the business gets a deduction.

After struggling with almost the exact same situation last year, I found an amazing tool that saved me hours of calculations and probably thousands in taxes. I run a smaller S-corp (LLC election) and was totally confused about how much I could contribute as employer and what the tax implications would be. I tried https://taxr.ai which analyzed my business structure and previous returns, then outlined exactly how much I could contribute and calculated the precise tax impact. It showed me that my $8k employer contribution would save about $1,920 in federal taxes and another $480 in state taxes. It also projected my tax savings at different contribution amounts and factored in the impact on my qualified business income deduction.

I was skeptical about trying another tax tool, but after struggling for weeks with my S-corp retirement planning, I gave taxr.ai a shot. Honestly, I'm blown away by how it handled my situation. I uploaded my business docs and it immediately identified that I could contribute much more than I thought to my solo 401k. For anyone else with an LLC taxed as an S-corp, it showed me that my $10k employer contribution would save about $3,200 in combined taxes, but I could actually go up to $17,500 based on my salary and business income. The best part was seeing the tax impact of different contribution amounts side-by-side, so I could make the best decision. Definitely worth checking out if you're dealing with this S-corp/solo 401k calculation mess!

I had the exact same question last year and spent WEEKS trying to get someone at the IRS to confirm how the calculation works. I called at least 20 times and never got through. Finally found this service called https://claimyr.com that got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that employer contributions to a solo 401k reduce the S-corp's net income before it passes to your personal return on the K-1. She also explained how to properly document it since you're wearing both the employer and employee hats. Seriously saved me so much frustration!

I need to eat some crow here. After posting my skeptical comment, I decided to try Claimyr myself because I'm desperate to get an answer about my S-corp's payroll tax issue. I honestly can't believe it, but I got through to an IRS agent in about 20 minutes. The agent was able to confirm exactly how my LLC (taxed as S-corp) should handle employer contributions to my solo 401k and clarified how it affects my business tax forms. They explained that the $10k would reduce my company's profit before the K-1 pass-through, essentially saving me at my personal tax rate. What would have taken me days of research or hundreds in accounting fees took one phone call. I'm still shocked this actually worked.

One thing nobody mentioned yet - make sure you've filed the proper paperwork for your solo 401k plan! I got burned last year because I didn't realize that once my solo 401k assets exceeded $250k, I needed to file Form 5500-EZ. My S-corp contributions were fine tax-wise but I almost got hit with penalties for missing that filing requirement.

Just to add a datapoint - my LLC (S-corp) made about $115k profit last year with $70k salary. I contributed $12k as employer portion to my solo 401k and it saved me roughly $3,360 in federal income tax (28% bracket) plus about $840 in state taxes. The way it worked on my return: the $12k reduced my business income before the K-1 pass-through, so it directly reduced my taxable income on my personal return. My accountant set everything up, but understanding how the numbers worked really helped me plan better for this year.

If ur doing this yourself, the actual calculation is pretty simple. The employer contribution is a business expense that reduces ur net income. So if ur in the 24% bracket, a $10k contribution saves u $2,400 in federal taxes plus whatever state tax u have. Just make sure u follow the limits - employer contribution can't exceed 25% of compensation for an S-corp. So with $62k salary, ur max employer contribution would be $15,500, plus ur employee contribution. Hopefully that helps!

This is exactly the kind of question I was wrestling with when I first elected S-corp status for my LLC! The key thing to understand is that employer contributions to your solo 401k are treated as a business deduction, which reduces your S-corp's net income before it flows through to your personal K-1. So in your case, that $10k employer contribution would reduce your business profit from $98k to $88k for tax purposes. This means you'll save taxes at your marginal rate on that $10k - so if you're in the 24% bracket, that's $2,400 in federal tax savings, plus any state tax savings. One thing to double-check: with your $62k salary, your maximum employer contribution would be 25% of that, which is $15,500. So your planned $10k contribution is well within limits. The employer contribution is definitely more tax-efficient than taking it as a distribution since it reduces your taxable income entirely, whereas a distribution would still be taxable income (though not subject to self-employment tax thanks to your S-corp election). I'd recommend running the numbers both ways - with and without the contribution - to see the exact impact on your tax situation. It's usually a no-brainer from a tax perspective!