Pension & Profit-Sharing
Retirement plan contributions for your employees go on Line 19. Your own contributions go somewhere else entirely — getting this wrong is an immediate IRS red flag.
A guide by Taxstra Tax & Accounting — CPA-led tax strategy for business owners
Line 19 allows you to deduct contributions made to a qualified retirement plan for your employees. SEP-IRA, SIMPLE IRA, or 401(k) contributions you make on behalf of W-2 employees go here. Your own retirement contributions as the business owner — even if the money comes out of the business account — do not belong on Schedule C.
Critical: Owner Contributions Do NOT Go Here
Do NOT List Your Own Retirement Contributions on Line 19
Even though the money physically leaves your business bank account, your personal retirement contribution is deducted on Form 1040, Schedule 1, Line 16 — not on Schedule C.
Putting your own contribution on Line 19 artificially lowers your Schedule C net profit, which lowers your self-employment tax. This is incorrect and an immediate IRS red flag. If you have been doing this, file an amended return.
The Major Small Business Retirement Plans
| Plan | Best For | Contribution Limit (2025) | Key Feature |
|---|---|---|---|
| Solo 401(k) | No employees (except spouse) | $70,000 (2025 total) | Roth option; loan provision |
| SEP-IRA | High income, simplicity preferred | 25% of net self-employment income | Open until tax deadline |
| SIMPLE IRA | Businesses with employees who contribute | $16,500 employee deferral (2025) | Must establish by Oct 1 |
| Cash Balance Plan | High-income owners age 50+ | $200,000+ (age-dependent) | Actuarial; multi-year commitment |
Solo 401(k)
Best For: Business owners with no employees other than a spouse.
- Highest contribution limits of any small business plan (up to $70,000 for 2025)
- Includes a loan feature — borrow up to 50% of account balance, max $50,000
- Roth contribution option available
- Once you have non-spouse employees, you can no longer contribute as a "solo" plan
SEP-IRA
Best For: High-income business owners who want simplicity and minimal admin.
- Easy to set up — can open up to the tax filing deadline (including extensions)
- Contribute up to 25% of net self-employment earnings, max $70,000 (2025)
- Must contribute the same percentage for all eligible employees as you contribute for yourself
SIMPLE IRA
Best For: Businesses with distinct employees where you want employee salary deferrals too.
- Employees defer their own salary into the plan
- Employer match required — typically 3% of employee compensation
- Must be established by October 1 for the current plan year
Common Mistakes on Line 19
The Net Earnings Calculation
SEP-IRA contributions for the owner are calculated on "net self-employment earnings" — Schedule C profit minus one-half of self-employment tax. It is not 25% of gross income. Using the wrong base overstates your allowable deduction.
Excluding Long-Term Part-Timers
Under SECURE Act 2.0, part-time employees who work 500+ hours per year for three consecutive years must be allowed to participate in your 401(k). Excluding them is now a plan qualification violation.
High-Income Owners: Stack Multiple Plans
Frequently Asked Questions
Next Steps
Filing it yourself is fine — optimizing it is where the money is
Getting the form right keeps you out of trouble. The strategies below are what actually lower the bill.
Locum Tenens Tax Guide
Solo 401(k) and retirement stacking for 1099 physicians — how high-earning contractors layer plans to shelter six figures a year.
S-Corp Election Guide
Your entity structure changes the retirement math: an S-Corp shifts how Solo 401(k) and SEP contributions are calculated and what they save you.
Maxing the contribution is step one. Stacking the strategy is step two.
Free 30-minute call with a Taxstra CPA — no pressure, just the math for your situation.
Want to Shelter More Income in Retirement?
A Taxstra CPA can model the right retirement plan combination for your income level, entity structure, and employee count — and run the numbers on a potential Cash Balance Plan.
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