How Much Can Business Owners Contribute to a solo 401(k)?

Since a business owner is both an employee and employer of his or her company, contributions can be made to the 401(k) plan in both capacities.

For the employee portion, the maximum contribution for 2018 is $18,500. If aged 50 or over, the maximum is $24,500.

For the employer portion, the business owner can contribute up to 25% of the business owner’s salary. This salary must be W-2 income that you receive from your company. Dividend or net profit income that goes on your K-1 does not qualify.

For example, assume an S corporation business owner under 50 has $60,000 of W-2 earnings in 2018. The maximum contribution to this business owner’s solo 401(k) would be: $18,500 + (25% x $60,000) = $33,500.

The 2018 Solo 401k contribution limit is $55,000 (or $61,000 if aged 50 or older).

Reminder: Third Quarterly Estimated Tax Payment Due September 17

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes earnings from self-employment, interest, dividends, rents, and alimony.

As a result, sole proprietors, partners, S corporation shareholders, and independent contractors may need to pay quarterly installments of estimated tax unless they owe less than $1,000 when they file their tax return. Employees generally do not need to make estimated tax payments because employers withhold income taxes from the employees' paychecks.

Because the U.S. tax system operates on a pay-as-you-go basis, taxpayers are required to pay most of their tax liability during the year. A penalty will apply to any taxpayer that pays too little tax (generally less than 90 percent of the tax shown on the return for the current tax year or 100 percent of the tax shown on the return for the preceding tax year) through withholding, estimated tax payments or a combination of the two.

For tax-year 2018, the remaining estimated tax payment due dates are Sept. 17, 2018 and Jan. 15, 2019.

Beware of "Spear Phishing"

Phishing is when a scammer sends out e-mail messages in an attempt to scam victims into revealing private information. "Spear Phishing" differs from regular phishing in that the scammer has researched the victim before sending the message. Spear phishers will craft the e-mail to make it seem like they know a lot about the victim in order to increase the odds that the victim will reveal their secret information.

The email, disguised as being from a trusted source, may seek to have victims voluntarily disclose sensitive information such as bank account information, social security numbers, or passwords. For example, the scammer may send an e-mail claiming to be the victim's tax preparer (and the scammer may even use the victim's and tax preparer's real names in the e-mail). The scammer may then make an urgent plea for the victim's social security number.

Alternatively, the e-mail may encourage the victim to open a link or attachment that actually downloads malware onto the computer, such as a keylogger. Once installed, the keylogger secretly records every keystroke typed on the computer, which is then made available to the scammer.

If you receive an e-mail request for sensitive data that appears to be from a trusted source, you should call or text that trusted source in order to verify whether or not the e-mail did in fact come from them.