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LLC S-Corp net income question
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Top ForumsSolo 401k Contributions Hi Team,
I am trying to understand the “net income” for S-Corp (in case of opting for Solo 401(k).
When we calculate “net income” of the S-Corp, do we take out “Profit sharing contribution 25%” as deduction?
For example: Let us say I have “one member” S-Corp with 100K Gross income, I am trying to maximize
Solo 401k
Employer profit sharing contribution
Voluntary after-tax contributions
All of these “items” are dependent on “net income”, which means I need to deduct “all the expenses” to identify what would be “reasonable salary”. Seems like Chicken egg problem.
Above 100K example, following 60/40 rule, if I take “salary” as 60k.
Salary – $60,000
7.5% of tax is one deductible – $4,500
Other business expenses – $5,000
401k employer contribution (25% of salary) – $15,000
Around $85,000 is total,
Which leaves $15,000. Now the confusion is, should I use this remaining amount ($15,000 – personal tax) to contribute towards “Voluntary after tax deduction” (or) I can contribute to “Voluntary after tax deduction” from the salary ($60,000 – personal tax)?
Anything else I can fine tune in this so I can maximize contributions towards savings (Both pre-tax and after-tax). Appreciate your suggestions!
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Top ForumsSolo 401k, Solo 401k Contributions
For a self-employed business taxed as an S-corp, one’s ability to make all types of contributions (pre-tax, Roth and/or voluntary after-tax) is based on the w-2 wages from such S-corp.
For example, one may make a voluntary after-tax contribution equal to 100% of the w-2 wages to exceed the overall limit (e.g. $61,000 for 2022) reduced by any employee or employer contributions made to the Solo 401k.
See more: https://www.mysolo401k.net/solo-401k-contributions-mega-backdoor-solo-401k-guides/
