Form 1065 and 401k deductions

[henryB]

What is the name of your state? Michigan
Husband/wife partnership, unincorporated.
Setting up individual 401K

Where and how do I show elective deferrals (the 14,000 + 4000 catchup) on the form 1065? K-1 and Sch E seem to assume that the total income shown is the amount reduced by the elective deferrals. Yet there is no reference at all to the elective deferrals in the 1065 or the K-1 instructions.

Where and how do I show the profit-sharing deduction on form 1065?

 

[abezon]

That's because you can't have 401k salary deferrals from your own partnership. Partners cannot take a salary from their partnership; only an employee can do that. If you want to put part of your income into a 401k, you need to form an S- or C-corp. Or get a job. As a partner, you'll pay income & SE taxes on the net profit of the p'ship. You can still put some of your income into a retirement plan & sve income taxes, but you'll pay SE taxes on it. See a financial advisor for help setting up a plan.

With a corp, you take a reasonable salary & pay income & employment taxes on that, and pay income taxes on other profits (dividends), either at the corp level (C-corp) or on your 1040 (S-corp).

 

[henryB]

Reply from henryB

IRS publication 560, p 22, "Deduction Worksheet for Self-employed," step 9: 'Enter you allowable elective deferrals made during 2004' (presumably similar, with adjusted numbers, for 2005).

So they're not "salary" deferrals. They're still deferrals. Where and how do I make them? Or is this just a "nominal deferral" and I just fold in the amount and write one check to my individual 401k account?