Business Profit Sharing

As the titling suggests, Business Profit Sharing is an employer contribution to your Solo-K plan. Most don’t understand that, even if a sole proprietorship, a sole prop can still make a business profit sharing contribution.

2019 Profit Sharing Contribution Limits

The profit-sharing contribution for 2019 is $37,000 regardless of the age of the participant. Profit-sharing is based on a percentage of income realized by the participant, where an elective deferral is a defined maximum limit a participant can contribute based on their income. Or another way of considering the difference is that the profit-sharing contribution is made by the business where the elective deferral is a direct contribution from the compensation of the employee. Elective deferral limits for 2019 are $19,000 for someone under the age of 50 and $25,000 for those individuals over the age of 50.

2019 Profit Sharing Calculations

Sole Proprietorship or Single-Member LLC

The profit-sharing for either business structure is a maximum of 20% of your Schedule C (on your 1040 tax return);

Incorporated Entity

The profit-sharing for your incorporated entity is 25% of your W-2 income.

Intoto, between Elective Deferrals and Business Profit-Sharing your maximum Solo-K contributions for your benefit is $56,000 if you are under the age of 50 and $62,000 if you are over the age of 50.