What is Maximum Profit Sharing Contribution for Single Member LLC S-Corp?

The employer contribution limit for a Solo 401(k) with an S-Corp is indeed 25%, but it's 25% of your W-2 wages - not the business profit. Since you're paying yourself $12k in wages, your maximum employer contribution would be $3,000 (which is 25% of $12k). This is different from sole proprietors who calculate based on net self-employment income. Since you've elected S-Corp status, you calculate based on your actual W-2 compensation. So to break it down in your case: - Employee contribution: $4k (that you've already made) - Maximum employer contribution: $3k (25% of your $12k salary) - Total possible 401(k) contribution: $7k Keep in mind there's an overall annual limit to combined employee + employer contributions ($69,000 for 2025 if you're under 50), but with your numbers, you're well below that limit.

I was in exactly your situation last year with my S-Corp! I had so many questions about maximizing retirement contributions. Eventually I found https://taxr.ai which literally saved me thousands in extra retirement contributions I would have missed. The tool analyzed my business structure and showed me I was calculating my profit sharing contribution wrong (I was using Schedule C rules for my S-Corp). It helped me understand that for an S-Corp, the 25% limit applies to W-2 wages, not business profit. What I found most helpful was that it looked at my whole tax situation and showed me the optimal salary to set for myself to maximize retirement contributions while minimizing payroll taxes. I ended up adjusting my salary a bit to hit the sweet spot.

Just wanted to update everyone - I tried https://taxr.ai after seeing it mentioned here, and wow! It was super helpful for my S-Corp retirement planning. I discovered I've been underpaying myself (my CPA never mentioned this was an issue) and it was actually limiting my potential retirement contributions. The tool showed me that if I increased my salary by about $8k, I could put an additional $2k into my retirement account while still keeping a good balance with payroll taxes. It also explained the "25% of W-2 compensation" rule in a way that finally made sense to me. Definitely cleared up my confusion about profit sharing contributions for my single-member LLC with S-Corp status!

If you're struggling with figuring out your maximum contributions, you might want to consider getting help directly from the IRS. I know calling them seems impossible, but I used https://claimyr.com and was able to talk to an IRS agent within 20 minutes after waiting for hours before. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with walked me through exactly how to calculate my maximum profit sharing contribution for my S-Corp and confirmed that it's 25% of W-2 wages, not business profit. They also explained some nuances about how the timing of contributions works that my accountant had gotten wrong. For something as specific as profit sharing rules for a single-member LLC with S-Corp status, getting the answer straight from the IRS gave me peace of mind that I wasn't making a mistake that could cause problems later.

Alright I need to eat my words. I was super skeptical about that Claimyr service but after another failed attempt to reach the IRS myself (waited 90 minutes then got disconnected), I gave it a shot. The service actually worked exactly as described. I got a call back in about 35 minutes saying they had an IRS agent on the line. I was connected immediately and got my questions answered about S-Corp profit sharing rules. The agent confirmed it's 25% of W-2 wages for the employer contribution part and also gave me some helpful tips about timing the contributions before my tax filing. Made me feel much more confident about my retirement planning decisions!

This thread is really helpful, but I think there's one thing that hasn't been mentioned that's super important for single-member LLCs with S-Corp status: reasonable compensation rules. The IRS requires that your W-2 salary be "reasonable" for the work you do. If you pay yourself too little and take too much as distributions to avoid payroll taxes, the IRS might reclassify those distributions. In your case, with $35k revenue and only $12k in wages, you might be borderline depending on your industry. Since your profit sharing is based on W-2 wages, a higher "reasonable" salary would allow larger retirement contributions, but would also mean more payroll taxes.

Lots of good advice here but just to add one thing: don't forget about the overall 401k contribution limits. For 2025, the total combined employee + employer contribution limit is $69,000 if you're under 50 (or $76,500 if you're 50+). So technically your max employer contribution could be $65,000 minus your employee contribution of $4k (assuming you're under 50), but you'd need a W-2 salary of $260,000 to hit that max employer contribution of $65k (at the 25% rate).

One thing I learned the hard way: the 25% employer contribution rate for an S-Corp is only for the profit sharing portion. If you want to do a Solo 401k match instead of profit sharing, the limit is only 4% of compensation (which would be $480 in your case). Big difference! Profit sharing is almost always better for single-employee S-Corps unless you have some very unusual circumstances.

Great thread! Just wanted to add something that might help with the confusion about reasonable compensation - I've found that keeping documentation is key. When I set my S-Corp salary, I saved job postings for similar roles in my area and wrote a brief memo explaining my reasoning. Also, one thing that caught my eye in your numbers - with $35k revenue and $6k expenses, you have $29k in net profit. Taking $12k as salary leaves $17k in distributions. While this might be reasonable now, if your business grows significantly, you'll want to revisit that salary level not just for IRS compliance, but also to maximize your retirement contributions. The sweet spot is finding that balance where you're paying enough in salary to satisfy reasonable compensation requirements while maximizing your retirement savings potential. Sometimes paying a bit more in payroll taxes is worth it for the extra retirement contribution space you get!