ForumsSolo 401kTurbotax 2023 does not allow form 8881 for Sched C filers

Forums Solo 401k Turbotax 2023 does not allow form 8881 for Sched C filers

  • Turbotax 2023 does not allow form 8881 for Sched C filers

    George Blower replied 1 month ago 3 Members · 6 Posts
  • 5 Replies
  • Gary Pientka

    Top SubjectSolo 401k Contributions,Solo 401k
    Top ForumsSolo 401k Contributions, Solo 401k

    Gary Pientka

    Gary Pientka

    Top SubjectSolo 401k Contributions,Solo 401k

    March 19, 2024 at 9:55 pm

    I attempted to take the auto-enrollment credit for my solo 401k using Turbotax (TT) online. It has a prompt for the startup cost credit (part I) but no place to enter the startup costs. Without it you cannot get into form 8881 to enter part II.

    Turbotax for Windows has the same issue. It does, however, allow you to manual add form 8881 and fill out only part II. The $500 auto-enrollment credit flows through to form 3800 and then to Schedule 3. When I tried to e-file the fed rejected my return because TT did not enter the “pass through or transfer credit entity EIN” on the form 3800 pt 3 table (1dd column d). Talked to a couple TT experts before one told me that TT is still not capable of handling the form 8881 credits for Schedule C filers and that I would have to mail in my return instead of e-filing. I will include form 8881 and enter the EIN manually of form 3800 Pt 3.

    Gary Pientka
  • George Blower

    Top SubjectDaily Live Webinar,Solo 401k
    Top ForumsDaily Live Webinar, Solo 401k

    George Blower

    George Blower

    Top SubjectDaily Live Webinar,Solo 401k

    March 20, 2024 at 3:31 am

    Thanks for sharing your experience. I note that the IRS just updated Form 8881 at the end of 2023 and it sounds like TurboTax may be working on updating their software (which will hopefully be soon).

    • Top SubjectSolo 401k
      Top ForumsSolo 401k

      Larry S
      Top SubjectSolo 401k

      May 23, 2024 at 3:59 am

      I am a sole proprietor that files taxes on Schedule C and I file them myself using software. I’m interested in possibly signing up for your Solo 401(k) service. The $1500 auto-enrollment tax credit is a big reason I may decide to do it. But I’m struggling with how I would go about actually claiming the credit on my taxes.

      First, I want to confirm: Can a sole proprietor using Schedule C definitely claim this auto-enrollment credit on their personal taxes even though it’s a business tax credit?

      In the past I’ve used some services that allow me to file my taxes for free or very inexpensively. But those services, as far as I can tell, don’t offer Form 8881.

      The most obvious next option would seem to be TurboTax. It would cost me some extra money to file with TurboTax, especially every year for 3 years just to claim this tax credit. This would reduce some of the benefit of the credit. But it still might leave me with enough benefit to make your service worth it to me.

      However as the OP of this thread said, it does not appear that for 2023 taxes TurboTax online allowed a Schedule C sole proprietor like me to fill out Form 8881 in such a way as to claim just the auto-enrollment credit in Part II and leave Part I blank. I’ve also seen answers to questions by TurboTax themselves on their site that seem to confirm this. I have no way to know if they will allow us to do this for 2024 taxes. I am able with the 2023 Taxes version of TurboTax online to directly fill out Form 3800 to claim the credit there. But unfortunately, I don’t think I would be able to file my taxes while claiming the credit on just Form 3800 without Form 8881 also filled out correctly so that doesn’t help. (To be clear, I already filed my 2023 taxes. I was just using that version of TurboTax to test to see if I’d likely be able to claim this credit there next year. I did this testing in just the past several days so if there was hope that TurboTax online would add this ability in at some point in the most recent tax season, it doesn’t appear that happened.)

      Do you have any answer to how someone like me can claim the auto-enrollment credit without having to pay much higher costs to hire a professional to do our tax return? Do you have clients who have claimed this credit on their taxes while doing the taxes themselves?

      I suppose one possibility would be to do the taxes in TurboTax and then print them out and manually adjust them to claim the credit and then mail them in. But I don’t know how comfortable I’d be doing taxes that way. I’m hoping there is a better option.

      Larry S
      • George Blower

        Top SubjectDaily Live Webinar,Solo 401k
        Top ForumsDaily Live Webinar, Solo 401k

        George Blower

        George Blower

        Top SubjectDaily Live Webinar,Solo 401k

        May 23, 2024 at 4:12 am

        1) Yes a sole proprietor who sets up a solo 401k that includes the auto-contribution feature is eligible to claim the Solo 401k tax credit of $500 per year for 3 consecutive years (total $1500).

        2) The IRS updated the Form 8881 at the end of 2023 so it seems that some of tax software providers may not have yet updated their programming. In that case, an alternative would be to mail in the tax return as you noted.

        3) We provide a deep-dive walkthrough webinar to clients whose plan includes the auto-contribution feature that provides all of the steps to file and claim the credit (e.g. if a sole proprietor doesn’t file Form 3800 because they are not claiming any other credits and/or are not looking to carryback/carryforward the Solo 401k tax credit the amount from Form 8881 would simply be listed on Line 6z of Schedule 3 of the Form 1040).

        • Top SubjectSolo 401k
          Top ForumsSolo 401k

          Larry S
          Top SubjectSolo 401k

          May 23, 2024 at 5:18 am

          Thank you for the very quick response.

          1) I understand that the sole proprietor can claim the auto-enrollment tax credit. But can we claim it on our personal return? I assume so since as a sole proprietor we may not file any other return. But since it’s considered a “business tax credit” I just wanted to be completely sure. It sounds like the answer is yes.

          2) You said some tax software providers have not updated their programming. But are there any tax software providers you know of that do allow us to claim this credit properly? As of now I’m unaware of any, which would mean we have to either plan to pay a preparer or sign up and simply hope that the software providers update their service to properly claim the credit for next year’s taxes, which is a bit of a risk. I’m a little uneasy about mailing in the tax return. Filing electronically we get a nice verification that everything went through correctly. But mailing it in I may not get that. So I’m not very keen on doing it that way. It would be great to know what any of your current clients have done to claim that credit? Did all the ones who do their own taxes print and mail their taxes in paper form? I assume at least some of them do their own taxes?

          3) The webinar sounds as if it would be very helpful to know how the forms should be filled out. But I assume it doesn’t address the problem of which software can actually fill it out correctly? Or am I mistaken?

          I would appreciate any more thoughts you have. Given that the auto-enrollment tax credit is such an important incentive to sign up, it seems like it will be important to address how self-filers should do this most effectively and affordably.

          Larry S

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