The major question to address when it comes to Solo 401k tax filing is: Are there any annual tax filing requirements for the plan?
Since a Solo 401k plan is considered a trust, pursuant to Internal Revenue Codes (IRC) Section 401 and 501, there is generally no requirement to file annual state or federal income tax returns. However, if the assets total more than $250,000, there is one form that must be filed, IRS Form 5500-EZ (or 5500-SF).
Solo 401k Tax Filing Rules
As we mentioned earlier, if your total assets in your Solo 401(k) are under $250,000, you don’t need to file anything! But what happens when you exceed the $250K threshold? Well, you have to fill out an “information return” for the IRS. You have two choices of forms to fill out. First, is Form 5500-EZ, which can be mailed directly to the IRS. Secondly, is Form 5500-SF, which can be filed electronically online. You have until July 31 to file either form.
What does Form 5500 entail?
The IRS simply requires some general information about your plan. First, you’ll need Identification and Basic Plan Information about the Solo 401(k). This includes the beginning & end date, the name of the plan, the adopting employer and the number of participants. Next, you’ll have to input the Financial Information about the plan. This is where you need to show the assets and liabilities of the plan and how much it was valued at the end of the tax year. Finally, you need to answer if there are any outstanding loans from the plan.
It’s a fairly straight-forward form that most anyone can fill out. Note: If you are an IRA Financial client, we take care of the filing for you at no additional cost. Our tax specialists are always there to assist you if you have a question.
Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, must be filed electronically through EFAST2. Again, it’s really easy to fill out online and is considered more accurate.
Check out the IRS “Form 5500 Corner” for more info.