CPA is refusing to include solo 401k in the tax return

[Arshad Hussain]

My CPA says solo 401k is not allowed in my condition while several providers say it is allowed , who should I listen to. I want to use solo 401k so how can i convince my CPA. He says this link not applies:

https://www.irs.gov/retirement-plans/one-participa...

Me and my wife are part of solo 401 k trust and we both have regular w2 incomes but several side gigs. Please help.

thanks

[Linda Weygant]

Originally posted by @Arshad Hussain:

@Steven Hamilton II

following is the reason:

The husband’s income from flipping a house will not qualify as compensation for 401(k) Plan purposes, unless it is earned income subject to social security tax. Assuming this income is considered investment income, it will not qualify as compensation. Therefore, no contribution to the 401(k) Plan would be allowed.

 This is the issue right here.  Pretty much a smoking gun.  

Flipping income is almost always earned income subject to social security tax.  It's all about the intent when you purchased and began working on the house.  Were you always intending to flip it?  If so, then it's earned income.

The IRS does not care if you buy a house, improve it and sell it or buy lunch meat and bread and make sandwiches.  To them, it is exactly the same business model and is taxed exactly the same way.

There is some controversy out there as to occasionally flipping and whether it rises to a business.  In my opinion, it does.  Others will argue.

So in my opinion, your CPA Is wrong.  If you were flipping with the intent to make a profit, then you were in business and your profits are used in the calculation for your 401k.

However, there may be facts and circumstances I am not aware of and that have not been laid out here.  

I agree with the person who said you need to get these two professionals on a conference call.  But you may also need to either educate or fire your CPA.

Remember though, you can't have this both ways.  If you want the 401k contribution, you'll be paying SE tax.