Taxation in NJ of 401k deferrals to partners or sole-proprietors

[Guest sugarfree]

NJ state tax return allows employees to exclude 401(k) salary deferrals from taxable income. Does this apply also to sole proprietors and partners? There doesn't seem to be any place on the NJ1040 to deduct deferrals for a sole proprietor. For a partner, the deduction is usually already taken out of the K-1.

sugarfree

[mbozek]

I thought that a K-1 includes the partner's earnings from the pship before deduction of the deferral to the 401k plan and the amount of the deferral. The partner enters the net earnings from SE on the 1040 and deducts the deferral on line 30 of the 1040. There is no place for a partner to deduct his contribution to a retirement plan on the NJ 1040.

[Guest MrT]

It is my understanding that Employer Profit Sharing Contributions are not deductable from NJ Taxes for Partnerships and Sole Props. There was a court case on this I think the Koch case. There is suppose to be a basis established for the amounts contributed so there is not double taxation???? Hope this helps.

[Guest sugarfree]

mbozek & MrT -

Thanks for your replies. However, an accountant showed me that there is an adjustment that can be made to deduct deferrals for partners on a worksheet for the line on NJ1040 for partners' income. However, there doesn't seem to be any place for sole proprietors to deduct deferrals on the NJ1040. Yet it seems sole proprietors would have to pay NJ state tax on distributions from 401k plans. . . . .???

sugarfree