401k limitation -- is this right ?

[GetSmart]

I have a small business partnership with my husband and we typically put the majority of profits in a 401k -- was never sure if it should go in from the employEE side or the employER side. 

According to the information below (from random internet search) it would count against the employEE 18.5k + 6k catch up regardless.  If that's true than I am limited to contributions and can't contribute more than the 24.5k ?

Are there any tax gurus that can verify this and if it is still current ? 

This seems to be from 2016:
"For reasons that defy rational explanation, the 401(k) plan of a partnership or LLC is different than a 401(k) plan for an employee owner of an S corporation. Both have the same limitations on salary deferrals and both contain family attribution rules. However, the 401(k) plan of an LLC or partnership treats employer-matching contributions as if they were employee deferrals for partners or members. Assume an owner of a family business normally defers the maximum amount into a 401(k) plan and also receives an employer match of another several thousand dollars. Under a 401(k) plan in a partnership or LLC, the employer match will be included with the elective deferral from the owner’s pay, and the maximum will be exceeded. Therefore, the owner can not receive the employer match that he or she would have expected to receive."

source of information: https://www.irahelp.com/comment/50532#comment-50532

the link to the original source is broken

thanks !

[tralfamadorian]

I have a small business partnership with my husband and we typically put the majority of profits in a 401k -- was never sure if it should go in from the employEE side or the employER side. 

According to the information below (from random internet search) it would count against the employEE 18.5k + 6k catch up regardless.  If that's true than I am limited to contributions and can't contribute more than the 24.5k ?

Are there any tax gurus that can verify this and if it is still current ? 

This seems to be from 2016:
"For reasons that defy rational explanation, the 401(k) plan of a partnership or LLC is different than a 401(k) plan for an employee owner of an S corporation. Both have the same limitations on salary deferrals and both contain family attribution rules. However, the 401(k) plan of an LLC or partnership treats employer-matching contributions as if they were employee deferrals for partners or members. Assume an owner of a family business normally defers the maximum amount into a 401(k) plan and also receives an employer match of another several thousand dollars. Under a 401(k) plan in a partnership or LLC, the employer match will be included with the elective deferral from the owner’s pay, and the maximum will be exceeded. Therefore, the owner can not receive the employer match that he or she would have expected to receive."

source of information: https://www.irahelp.com/comment/50532#comment-50532

the link to the original source is broken

thanks !

The text from the link was written by someone who doesn't know what the hell they're talking about.

Employee side is $18.5k plus catch-up if applicable. Employer side is an additional 20%-1/2 self employee tax deduction if schedule C or 25% if W-2.

[GetSmart]

Employer side is an additional 20%-1/2 self employee tax deduction if schedule C or 25% if W-2.

Yes -- but it's not a sched C or a W-2.  It's SK-1 for partnership and then the deduction shows on line 28.  But I've assumed that we can contribute profit - 20% as  the employER which would be on top of the 18.5k + 6k.  This article is saying that that is not the case.

[tralfamadorian]

Employer side is an additional 20%-1/2 self employee tax deduction if schedule C or 25% if W-2.

Yes -- but it's not a sched C or a W-2.  It's SK-1 for partnership and then the deduction shows on line 28.  But I've assumed that we can contribute profit - 20% as  the employER which would be on top of the 18.5k + 6k.  This article is saying that that is not the case.

100% of your business income comes through your taxes as K-1?

[GetSmart]

I have several businesses - this 50/50 partnership.  Another is an S-corp with W-2.  There's also 1099 / schedule C income. 

And potentially next year will be a second S-corp - but it's a new business so haven't decided how to set it up yet.  So just trying to figure out especially for next year how to set it up to maximize the deductions and contributions.

[tralfamadorian]

Okay. Well, like I said above, you can contribute 20% Sch C minus half of your self employment tax deduction and 25% of your W-2 on the employer side up to a combined employee/employer 401k max of $54k plus catch-up. K-1 business income may qualify for the new 20% deduction but cannot be included in the 401k calculation.

[Kronsey]

Is the partnership an LLC? Why did you decide on partnership tax treatment?

If an option, I would think S-Corp taxation with two W-2s and maxing out employee and employer match (with profit sharing at year end) would be the best possible tax outcome.

You did mention you had other business interests, so maybe some more details on your entire tax picture would help.

[dandarc]

See the worksheet here:

https://www.irs.gov/pub/irs-pdf/p560.pdf

This is for 2017 - no idea if it has changed for 2018, but the instructions for step 1 say:

Enter your net profit from Schedule C (Form 1040), line 31; Schedule C-EZ (Form
1040), line 3; Schedule F (Form 1040), line 34;* or Schedule K-1 (Form 1065),* box 14,
code A.**

So, prepare your schedule K, and see what that box says for each of you and fill out the worksheet to figure your allowable soloK deduction.