Understanding Solo 401(k) Deduction Confusion - Where to Report Employee vs Employer Contributions?

You've got a bit of a common confusion here, but I can help clear this up! The reporting depends on what type of solo 401(k) plan you have. For your solo 401(k), you're correct about the contribution limits, but here's how the reporting works: The employee contribution (the $22,500) is NOT reported on Schedule C. This amount is actually reported as an exclusion from your income on your W-2 if you're incorporated, or it simply isn't included in your taxable income if you're a sole proprietor. It doesn't get deducted anywhere on Schedule C. The employer contribution (your calculated $12,006) is reported as a business expense on Schedule C, line 19 if you're a sole proprietor, which reduces your business income. You'd then report any traditional contributions that weren't already excluded from your income on Schedule 1, line 16. In your case as a sole proprietor, this would typically just be the employer portion. Your calculation for the employer portion looks correct - it's 25% of your net earnings from self-employment after deducting one-half of self-employment tax. Hope this helps clear things up!

I went through this exact same confusion last year with my consulting business! After hours of research and headaches, I finally found a solution using taxr.ai (https://taxr.ai) that helped me sort through all the conflicting information. I uploaded the IRS publication and my specific plan documents to the system, and it analyzed everything and gave me clear guidance for my specific situation. Turns out for my solo 401(k), I needed to report both contributions on Schedule 1, Line 16 - but it explained why this was the case for my specific plan. What I discovered is that the correct reporting method actually depends on the exact language in your specific plan documents. The tool helped me understand what passages in my plan were determining the reporting requirements.

Just wanted to follow up and say I tried taxr.ai for my SEP IRA confusion and it was actually super helpful! I had been reporting my contributions incorrectly for TWO YEARS because I misunderstood a section in the plan document from my provider. The system highlighted the exact paragraph that applied to my situation and explained how the contribution limits work based on my business structure. It saved me from potentially having to file amended returns and helped me calculate the correct maximum contribution for this year. What I really liked is that it didn't just say "do this" - it explained why and showed me the relevant sections of the IRS publications that applied to my situation. Now I actually understand the reasoning instead of just blindly following instructions.

For anyone struggling to get answers from the IRS about this kind of specialized tax question - I feel your pain! I spent WEEKS trying to get someone on the phone who could help with my solo 401(k) questions. I finally tried Claimyr (https://claimyr.com) after a friend recommended it, and they got me connected to an actual IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent I spoke with was actually knowledgeable about solo 401(k) plans and confirmed that for my specific situation, I needed to report both the employee and employer contributions on Schedule 1, Line 16. She explained it's because I'm a sole proprietor with no employees, so the plan is considered a self-employed plan. Honestly changed my whole perspective on getting tax questions answered directly from the source.

Ok I need to apologize and eat my words. After posting that skeptical comment yesterday, I got desperate with a tax issue involving some retirement account rollovers and decided to try Claimyr as a last resort. It actually worked exactly as described. Their system navigated all the IRS prompts (which I always mess up), waited on hold for about 40 minutes, and then called me when they had an actual IRS agent on the line. The agent I spoke with cleared up my rollover questions completely and even helped me understand how it would affect my solo 401(k) contributions for next year. Saved me from potentially making a costly mistake. I'm still shocked it worked. Just wanted to follow up since I was so publicly skeptical before.

Here's my understanding after dealing with solo 401ks for 6 years: If you're a sole proprietor (Schedule C filer), both employee and employer contributions go on Schedule 1, Line 16. Nothing goes on Schedule C. If you're an S-Corp, employee deferrals are excluded from your W-2 wages, and employer contributions are deducted on the S-Corp return. The confusion comes from the way IRS publication 560 is written - it's not clear about Schedule C businesses vs. other entity types.

Quick question - does anyone know if TurboTax handles solo 401k contributions correctly? I'm in the same boat and worried it's putting things on the wrong lines.

Thanks everyone for the detailed responses! This has been incredibly helpful. I was definitely overthinking this and getting confused by all the different sources online. Just to confirm my understanding based on what everyone's shared - as a Schedule C sole proprietor, I should: 1. Put the entire $34,506 ($22,500 employee + $12,006 employer) on Schedule 1, Line 16 2. NOT put anything on Schedule C, Line 19 3. My employer contribution calculation of 25% × ($52,000 - $3,975) = $12,006 looks correct I really appreciate how this community breaks down complex tax issues. The conflicting information out there is maddening, but having real people share their experiences and knowledge makes all the difference. One more quick question - do I need to file Form 5500 for my solo 401k, or is that only required if I have employees or the account balance exceeds a certain threshold?

Great question about Form 5500! For solo 401(k) plans, you generally don't need to file Form 5500 unless your plan assets exceed $250,000 at the end of the plan year. Since you're just starting out, you likely won't hit this threshold for a while. However, once you do cross that $250,000 threshold, you'll need to file Form 5500-EZ (the simplified version for one-participant plans) annually. The filing deadline is the last day of the 7th month after the plan year ends (so July 31st for calendar year plans), but you can get an automatic extension to October 15th by filing Form 5558. Also, just to reinforce what others have confirmed - yes, your understanding is correct: 1. Entire $34,506 goes on Schedule 1, Line 16 2. Nothing on Schedule C, Line 19 3. Your employer contribution calculation looks spot on The key thing to remember is that as a sole proprietor, you're wearing both the employee and employer hats, so the IRS treats both contribution types as adjustments to your personal income rather than business deductions. This is why everything flows to Schedule 1 instead of Schedule C. Glad this community could help clear up the confusion - solo 401(k) reporting is definitely one of those areas where the guidance can seem contradictory depending on the source!

I've been following this thread as someone who just started their own consulting business and is looking into setting up a solo 401(k) for next year. This has been incredibly educational! One thing I'm curious about - when you calculate that 25% for the employer contribution, is that 25% of your net self-employment earnings after deducting half of SE tax, or is there another adjustment I should be aware of? I've seen some sources mention that the contribution rate is effectively closer to 20% because you have to account for the contribution itself when calculating compensation. Is this something that matters, or am I overcomplicating it? Also, for those who have been doing this for a few years - do you typically max out both the employee and employer portions each year, or do you adjust based on cash flow? I'm trying to figure out how aggressive to be with retirement savings versus keeping cash in the business for growth.

This thread has been incredibly helpful! As someone who's been doing freelance work for a few years but just set up my first solo 401(k), I was completely lost on the reporting requirements. The clarity around Schedule C vs Schedule 1 reporting is exactly what I needed. I had been leaning toward putting the employer portion on Schedule C based on some outdated forum posts I found, but it sounds like for sole proprietors, everything should go on Schedule 1, Line 16. One follow-up question - if I set up my solo 401(k) mid-year (say in August), can I still make the full employee contribution of $22,500 for the tax year, or is it prorated based on when the plan was established? I know regular employer 401(k)s often have timing restrictions, but I wasn't sure if solo plans work the same way. Also, does anyone have experience with different solo 401(k) providers? I went with Fidelity because they don't charge annual fees, but I'm wondering if there are advantages to other platforms that might affect tax reporting or contribution flexibility. Thanks again to everyone who's shared their experiences - this is exactly the kind of real-world guidance that's so hard to find elsewhere!

This has been such a valuable thread! I'm in a similar situation - just launched my freelance marketing business this year and have been putting off the solo 401(k) decision because I was intimidated by all the tax implications. Reading through everyone's experiences, it sounds like the reporting is actually more straightforward than I initially thought. The key takeaway for me is that as a sole proprietor, both employee and employer contributions go on Schedule 1, Line 16 - not split between different forms. I'm curious about one aspect that hasn't been covered much - what happens if you have a really good year and want to contribute more than the calculated limits? Like if my business takes off and I have extra cash flow, can I make additional contributions to a traditional IRA on top of the solo 401(k), or does the solo 401(k) contribution reduce my IRA contribution limits? Also, for those who've been doing this for multiple years - do you find it worth it to work with a tax professional specifically for the solo 401(k) reporting, or is it straightforward enough to handle with good tax software once you understand the basics? Thanks to everyone who's shared their knowledge here. This kind of peer-to-peer learning is invaluable for us solo business owners!

This thread has been incredibly thorough and helpful! I'm a tax preparer who specializes in small business returns, and I wanted to add one important clarification that might help future readers. While everyone is correct that for sole proprietors both employee and employer contributions typically go on Schedule 1, Line 16, there's one nuance worth mentioning: the IRS has been somewhat inconsistent in their guidance over the years, which is why you'll find conflicting information online. The most current and reliable approach is indeed to report both portions on Schedule 1, Line 16 for sole proprietors. However, I always recommend clients check their specific plan documents, as some older solo 401(k) plans were structured differently and might require different reporting. Also, regarding the contribution calculation - make sure you're using the correct compensation base. For sole proprietors, it's net earnings from self-employment (Schedule C line 31) minus one-half of self-employment tax (Schedule SE). Then the employer contribution is calculated as 25% of that amount, but as someone mentioned earlier, the effective rate is about 20% due to the circular calculation. One final tip: keep excellent records of your contributions throughout the year. The IRS occasionally asks for documentation, and having clear records of when and how much you contributed makes any potential audit much smoother. Great discussion everyone - this is exactly the kind of peer support that makes navigating business taxes so much easier!

This has been such an educational thread! As someone who's been considering making the jump from W-2 employment to freelancing, the solo 401(k) discussion here has been incredibly valuable in understanding what I'd need to plan for. One thing I'm curious about - for those of you who transitioned from having an employer 401(k) to a solo 401(k), how did you handle the transition year? Like if I leave my job mid-year and start freelancing, I assume my contribution limit for the employee portion would be reduced by whatever I already contributed to my employer's plan, right? Also, I keep seeing mentions of the solo 401(k) being great for high earners, but what about someone just starting out? Is it worth setting up if you're only expecting to make $30-40k in your first year of freelancing, or would a SEP-IRA or traditional IRA make more sense at that income level? The clarity around Schedule 1, Line 16 reporting has definitely removed one of my biggest concerns about the complexity. It sounds like once you understand the basics, the actual tax filing isn't as intimidating as I initially thought. Thanks to everyone who's shared their experiences - this kind of real-world guidance is exactly what I needed to hear!

This entire discussion has been incredibly helpful! As someone who just started freelance consulting and has been paralyzed by all the conflicting information about solo 401(k) reporting, this thread finally gave me the confidence to move forward. The consensus seems clear for sole proprietors: both employee and employer contributions go on Schedule 1, Line 16. What really sealed it for me was hearing from the actual tax preparer who confirmed this approach, plus seeing how many people have successfully used this method. I'm planning to set up my solo 401(k) with Fidelity before year-end (thanks for that provider recommendation!), and I feel much more prepared now for the tax reporting side. The calculation examples and the clarification about the effective 20% rate for employer contributions were especially valuable. One thing I love about this community is how people share both their successes and their mistakes. Hearing about the person who was reporting incorrectly for two years but got it sorted out shows that even if you mess up initially, it's fixable. Takes some of the pressure off getting everything perfect on the first try. Thanks to everyone who contributed their knowledge and experiences - this is exactly why community forums like this are so valuable for us solo business owners navigating these complex tax situations!

As someone who went through this exact confusion last year, I want to echo what everyone has shared - the Schedule 1, Line 16 approach for sole proprietors is definitely the way to go. I spent way too much time overthinking it! One thing that might help future readers: I found it useful to think of it this way - as a sole proprietor, you're essentially both the employee AND the employer of your business. Since there's no separate business entity to deduct the employer contribution from (like there would be with an S-Corp), both portions flow through to your personal return as an adjustment to income. Wesley, your calculation looks spot-on. That $34,506 total going to Schedule 1, Line 16 is exactly right for your situation. For those just starting out with solo 401(k)s, one tip that saved me stress: set up automatic transfers from your business account to make regular contributions throughout the year rather than trying to do one big contribution at year-end. Makes the cash flow easier and ensures you don't forget to fund it before the deadline. The learning curve feels steep at first, but once you get through that first year of reporting, it becomes much more routine!