I am trying to understand the "net income" for S-Corp (in case of opting for Solo 401(k).
When we calculate "net income" of the S-Corp, do we take out "Profit sharing contribution 25%" as deduction?
For example: Let us say I have "one member" S-Corp with 100K Gross income, I am trying to maximize
Employer profit sharing contribution
Voluntary after-tax contributions
All of these "items" are dependent on "net income", which means I need to deduct "all the expenses" to identify what would be "reasonable salary". Seems like Chicken egg problem.
Above 100K example, following 60/40 rule, if I take "salary" as 60k.
- Salary - $60,000
- 7.5% of tax is one deductible - $4,500
- Other business expenses - $5,000
- 401k employer contribution (25% of salary) - $15,000
Around $85,000 is total, which leaves $15,000. Now the confusion is, should I use this remaining amount ($15,000 - personal tax) to contribute towards "Voluntary after tax deduction" (or) I can contribute to "Voluntary after tax deduction" from the salary ($60,000 - personal tax)?
Anything else I can fine tune in this so I can maximize contributions towards savings (Both pre-tax and after-tax). Appreciate your suggestions!