where to deduct profit sharing contribution

If you have a self-employed 401(k) can you deduct the profit-sharing contribution on Schedule C, line 19. At first glance the answer is no as publication 560 says

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Deduct the contributions you make for your common-law employees on your tax return. For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S.

Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership.)

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Lots of stuff I read on the internet confirms this.

But there is also a form 5500-EZ, and the existence of this form suggests that profit sharing to a plan with one employee is allowed. Towards the end of chapter 4 they write:

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Form 5500-EZ. You may be able to use Form 5500-EZ if the plan is a one-participant plan, as defined below.

One-participant plan. Your plan is a one-participant plan if either of the following is true.

The plan covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (whether incorporated or unincorporated).

The plan covers only one or more partners (or partner(s) and spouse(s)) in a business partnership.

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So the first question is whether sole proprietors can deduct the profit sharing on Schedule C, thereby reducing the FICA tax.

Second, if the answer is no, could money be saved by using an S Corp? Common sense tell me no as then there is a major tax advantage of one type of entity. I'm guessing that if the S Corp deducts the profit sharing contribution to a retirement plan, that profit sharing contribution is included in the employee's W-2.

Reply to
removeps-groups
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You are mixing apples and oranges. The 5500-EZ is an information form used to report the data the IRS wants about your solo 401(k). It has nothing to do with where you get to deduct your tax-deferred contributions.

Reply to
Alan

OK, so it's a line 28 deduction. Can one incorporate as an S Corp and pay themselves a profit sharing contribution, thereby deducting it against the corp's income? Would the profit sharing contribution have to be reported on the W-2 and 943?

Reply to
remove ps

Retirement plan contributions are a deduction on the S Corp. tax return. It reduces the amount of money available to be paid to the employee-shareholders as either wages or a share of profits. Wages and the share of profits are both taxed at ordinary rates. Only the wages are subject to the 15.3% payroll tax. There is a never ending battle between shareholder-employees and the IRS as to what is a reasonable wage.

As a direct answer to your question.... (I assume you meant Form 941 as

943 is for agricultural employees): Employee-shareholders get a W-2 for wages (the IRS gets that data and the 941 and the money) and they and the IRS get a K-1 for al of the other distributions.
Reply to
Alan

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