Self-Employed / Solo 401k Requirements

[Edwards]

I am a tattooer and work at a shop while technically working for myself, so file my taxes as self-employed (independent contractor).

I have been saving money and making use of an IRA, however, I would like to find other tax shelters beyond the IRA limitations.  Solo 401k sounds like the best method at the moment (allowing for the largest deposit of money), however, I am having difficulty understanding what exactly that would entail to set up.

Obtaining a Federal Employer Identification Number seems to be required first.  After that, I would speak to Vanguard regarding setting up the 401k.

My main questions are, if I obtain a Federal Employer Identification Number how will this affect my filing of taxes?  As of now, I file only once through my SSN.  Will I then need to file twice each year for my SSN and the FEIN?

Furthermore, am I leaving any other steps out of the process to setting up a solo 401k?  Such as, do I have to have a LLC etc.

Lastly, I apologize for my lack of knowledge or muddled explanation of my situation.  I don't know anyone who actual saves for the future so what little information I know comes from reading great sites like this.  Feel free to ask me any questions that may help clarify things.  I very much appreciate any advice from this community.  Thanks.

[matchewed]

There are a couple of qualifications for the Solo 401k. Boiled down you need to have a business. That business can take the form of what you see in the link.

Once you have the business then you can get a FEIN. I'm not a business owner so I'm unsure about the taxes related to business ownership and self-employment.

[randymarsh]

You still only file 1 tax return. But you'll list your EIN as the employer on the Schedule C form.

BTW, I'm not 100% positive you have to get an EIN. Right now it sounds like you're a sole proprietor just using your SSN. I think that's all you need for the solo 401k.

Personally, I would go ahead and get the EIN though. I'd also open a separate business checking account if you don't already have one. All tattoo income goes into this. All business expenses come out, like ink, needles, booth rent if that's a thing, self-employment taxes, etc.  Then pay yourself out of this account every month/2 weeks/whatever. Your "paycheck" goes into your personal checking account and from there you pay your regular bills.

This sounds complicated but it'll make book keeping and taxes way easier.

[Edwards]

Thank you both for the help. 

[bacchi]

Yeah, you don't need an EIN for a solo 401k though Vanguard requires one (Fidelity doesn't).

With an LLC and an EIN, besides what thefinancialstudent wrote, you can get business credit cards for more sign-up bonuses and they won't show up on your personal credit report.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-%28EIN%29-Online

[Todd]

I work in healthcare as an independent contractor (1099), and have a Solo401K.

It's kind of a weird-thing to wrap your head around, but once set-up, I have been VERY happy with mine. My wife & I are both 'employees' of my company, thus we can each contribute to our plan (ie; $17,500 each, per year).

A knowledgeable CPA (or one that is open to learning), and a good company to set it up are paramount.

If you'd like to talk to me more about this, or want to speak to the company that set mine up, please feel free to message me & I will pass on the info to you.

Good luck,

Todd