I think this will be the last year I can get away with not using a tax professional, but I'd love to go one more year before I have to. My wife (filing jointly) is currently freelance consulting. Let's say she made 20k freelance consulting last year, cause round numbers are easier. She has a proper business license under the name of her consulting company, but for simplicity, has not yet created an S-Corp. She has also opened a Solo 401k under this name (which she hasn't funded yet - this is its first year).
In the course of freelancing, she discovered that several clients were after very similar things, and decided to start working on a side project that turned into a startup idea, which she's poured a decent amount of money into, mainly in the form of hiring temporary contract work (no other actual employees besides herself). This startup currently exists as a "dba", and has made no money yet (in fact, it's made significant negative money so far). Let's say in the interest of round numbers, she spent 10k out of pocket on it last year.
In this scenario (accurate except for the numbers, which I made up), clearly she can write off the 10k in business expenses, but after that, can she still contribute 18k to the solo 401k? Or will the IRS consider the two to be the same business, and the deduction reduce the amount of "income" she will be seen to have made, and thus the amount she's eligible to contribute? If the latter, would it be different if the startup were converted to an S-Corp?