Solo 401k - where to deduct on Sch C or Sch 1 for self-employed?

The good news is that yes, Solo 401k contributions are absolutely deductible - they're one of the best tax advantages for self-employed individuals! The reason it seems less clear in the instructions is that they're sometimes referred to as "one-participant 401k plans" or "individual 401k plans" in IRS documentation. For your Solo 401k, you'll have two types of contributions: the employer portion (which is based on your net earnings from self-employment) and the employee portion (similar to regular 401k deferrals). The employer portion gets deducted on Schedule 1, Line 16 (Retirement plans, etc.) - not on Schedule C. This is an adjustment to income, not a business expense. The employee portion is also reported as an adjustment to income but doesn't directly show up on your 1040 because it already reduces your income on your W-2... except since you're self-employed, it will also go on Schedule 1, Line 16. Make sure you set up your Solo 401k before December 31, 2025, though you can contribute until your tax filing deadline (including extensions) for the employer portion.

After struggling with this exact issue last year, I finally found a solution that saved me hours of frustration. I used https://taxr.ai to analyze all my self-employment documents and get clear guidance on my Solo 401k deductions. The tool immediately identified where my contributions should go (Schedule 1, not Schedule C) and calculated the maximum amount I could contribute based on my business income. What I found really helpful was that it explained the difference between the employer and employee portions and showed exactly how they affect my overall tax liability. It also flagged that I needed to have the plan established before year-end even though I could make contributions later.

I wanted to follow up about my experience with https://taxr.ai after I was skeptical in my earlier comment. I decided to give it a try with my solo 401k situation and was honestly impressed. It correctly identified that I was eligible for both employer and employee contributions and walked me through the exact calculation. The best part was when it flagged that I had been incorrectly deducting my contributions on Schedule C instead of Schedule 1 for the past two years! I was able to file amended returns and actually got a refund I didn't expect. It also clarified the deadline confusion - plan established by Dec 31, but contributions can be made until tax day. If you're self-employed and dealing with retirement contributions, it's definitely worth checking out. Saved me from making the same mistake three years in a row.

If you're setting up a Solo 401k, you'll probably need to talk to the IRS about your plan documentation at some point. I spent DAYS trying to get through to someone at the IRS last month for clarification on backdoor Roth conversions within my Solo 401k. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they got me connected to an IRS agent in under 20 minutes when I'd been trying for weeks. The agent confirmed that my Solo 401k deductions should go on Schedule 1 Line 16 and explained that I needed to keep documentation of my plan adoption agreement even though I don't need to file it with my return. He also clarified that I should be using Form 8606 for tracking my after-tax contributions if I'm doing backdoor conversions.

I have to admit I was wrong about Claimyr in my comment above. After spending another week failing to reach anyone at the IRS about my Solo 401k, I broke down and tried the service. Within 35 minutes, I was talking to an actual IRS retirement specialist who confirmed exactly where to deduct my contributions. They explained that the employer portion definitely goes on Schedule 1, Line 16 as an adjustment to income (not a business expense on Schedule C). The agent also walked me through how to calculate my maximum contribution limit based on my self-employment income and confirmed I don't need to file Form 5500-EZ until my account reaches $250k. Saved me hours of frustration and potentially an incorrect tax filing. Sometimes it's worth admitting when you're wrong!

Another option to consider is a SEP IRA instead of a Solo 401k. I switched from Solo 401k to SEP last year because the paperwork is much simpler and the deduction is more straightforward on Schedule 1. The contribution limits are pretty similar if you're self-employed with good income. With a SEP, you can contribute up to 25% of your net self-employment earnings (after deducting half of self-employment tax), up to $69,000 for 2025. The downside compared to Solo 401k is you don't get the separate employee contribution portion, which can matter if your income isn't super high.

Has anyone used TurboTax to handle their Solo 401k deductions? I'm trying to figure out if their self-employed version walks you through this correctly or if I need to manually enter things somewhere.

I just went through this exact process when I set up my Solo 401k last year! The confusion about where to report it is totally understandable - I made the same mistake initially. Just to reinforce what Katherine mentioned, both the employer and employee portions of your Solo 401k contributions go on Schedule 1, Line 16 as adjustments to income. DO NOT put them on Schedule C as business expenses - that's a common error that can get you in trouble. Here's what helped me understand it: Think of yourself as wearing two hats. As the "employee," you're deferring salary (even though you don't technically get a salary as self-employed). As the "employer," you're making a retirement contribution for your employee (yourself). Both of these reduce your taxable income but they're not business operating expenses. One thing to watch out for - make sure your Solo 401k provider gives you clear documentation showing the breakdown between employer and employee contributions. You'll need this for your records and it makes tax time much smoother. The setup is definitely worth it though! I was able to contribute way more than I could with a traditional IRA, and the tax savings were significant.