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You enter net business profit. CoastMath counts it as ordinary income and charges self-employment tax on 92.35 percent of it. It deducts the employer-equivalent half of that tax from AGI and applies a simplified 20 percent qualified business income (QBI) deduction.
A solo 401(k) can take employee deferrals and an employer contribution from the same profit. Both are held to the limits for the self-employed, and both are paid out of the business’s cash.
Business income is a Salary income with Self-employed checked under Growth and tax settings. Its amount, growth and timing work exactly like a salary’s; see Wages, raises and work income.
Each business income belongs to one person. Self-employment tax, its Social Security limit and the contribution limits are figured for that person, alongside any wages the same person earns.
Self-employment tax=Net profit×92.35%×(Social Security rate + Medicare rate)
The Social Security rate applies only up to the wage base left after that person’s W-2 wages. The Additional Medicare Tax applies to combined wages and self-employment earnings above the filing-status threshold.
Each rate is the employee and employer share combined. If 92.35 percent of the profit is under $400, the person owes no self-employment tax; that floor is applied per person. The rates, the wage base and the Additional Medicare Tax threshold are in Payroll taxes, self-employment tax and AMT.
Half of the Social Security and Medicare parts of the tax is deducted in figuring AGI. The Additional Medicare Tax isn’t part of that deduction. Self-employment tax itself is always figured on the full profit: neither this deduction nor a retirement contribution lowers it.
QBI deduction=20%×the smaller of QBI and taxable income before this deduction
QBI is net profit minus the deductible half of self-employment tax and minus the traditional solo 401(k) contributions made from that business. Roth contributions don’t reduce it. The taxable income used for the limit is after the standard or itemized deduction and excludes long-term capital gains and qualified dividends. The QBI deduction lowers taxable income, not AGI, so it doesn’t change any AGI-based threshold.
A payroll rule funds a solo 401(k) from business income. Choose Payroll percent of income, the business income as Source income and a 401(k) owned by the same person as the destination. Both percentages apply to net profit:
- Employee contribution (%) is an elective deferral. It shares the employee limit, including catch-up contributions, with any other 401(k) the person contributes to. It can’t exceed that person’s wages and profit for the year.
- Employer contribution (% of income) is the business’s profit-sharing contribution. It’s capped at 20 percent of net profit minus the deductible half of self-employment tax. With a 25 percent plan rate, that’s the rate the self-employed can actually use. Employee and employer money together stay within the overall annual limit.
- Your business is a separate employer from any W-2 job, so a solo 401(k) funded from business income has its own overall annual limit. Employee deferrals still share one limit across all your plans.
- Employee deferral limit
- $24,500
- plus catch-up contributions at 50 and older
- Employer contribution cap
- 20%
- of net profit minus half of self-employment tax
- Overall annual limit
- $72,000
- employee and employer, excluding catch-ups; never more than earnings
Unlike a W-2 employer match, the employer contribution comes out of the profit you entered, so it lowers cash. Traditional contributions, employee and employer, are deducted in figuring AGI and reduce QBI. Roth contributions leave cash with no deduction.
A single filer has $100,000 of net profit in 2026 and no other income. A payroll rule asks for an employer contribution of 20 percent of income into a traditional solo 401(k).
| Net profit | $100,000.00 | |
|---|---|---|
| × | Earnings factor | 92.35% |
| = | Self-employment earnings | $92,350.00 |
| → | Self-employment tax15.3% of earnings, all below the wage base | $14,129.55 |
| → | Deductible half | $7,064.78 |
| → | Employer contribution20% × ($100,000 − $7,064.78); the requested $20,000 is capped | $18,587.05 |
Taxable income before the QBI deduction is $58,248.18, less than QBI of $74,348.18, so the deduction is 20% of $58,248.18.
Show data
| Step | Amount |
|---|---|
| Net profit | $100,000.00 |
| Half of SE tax | −$7,064.78 |
| Solo 401(k) | −$18,587.05 |
| AGI | $74,348.18 |
| Standard deduction | −$16,100.00 |
| QBI deduction | −$11,649.64 |
| Taxable income | $46,598.54 |
Federal income tax on $46,598.54 is $5,343.83, against $8,235 without the contribution. Self-employment tax is $14,129.55 in both cases. The contribution moves $18,587.05 from cash to the 401(k), and year-end net worth is $2,891.17 higher: the income tax saved.
Self-employment tax is part of payroll tax in the year’s tax detail; Use the tax tools explains that view. In the year’s cash flow, business profit is income, and traditional solo 401(k) contributions appear as payroll deductions before net pay. The employer contribution never appears as extra income.