Sole Proprietors and 401(k)

[Guest jmurph]

This is more of an accountant question, but does anyone know if employee elective deferral amounts are deducted on Line 19 on the Schedule C since they are considered employer contributions for deduction purposes or are they considered part of the wages line on the Schedule C. Any help, particularly with cites would be appreciated. Thanks.

[Guest RS Vatalaro]

I have just heard this in passing at seminars, sorry I have no cite.

I would put the deferrals on the contrib line not the wage line. This way the IRS can multiply wages by 15% and see that 404 is not exceeded (since currently wages must be reduced by deferral prior to applying 15%).

If you include deferrals on the wage line, the IRS won't be the wiser anyway, but putting deferrals on the contrib line is more informative for the IRS.

As a CPA, in practice, I've seen it both ways, several times. Have never seen this be an issue on audit. Hope this helps.