We are using TurboTax software. Under federal income, where it lists business deductions and credits, it has an amount that is basically the total net income from my wife's jewelry business…let’s say $5,000 for discussion purposes. In filling out the forms, we said that she wants to make a SEP IRA contribution, and it seems to be assuming that she will contribute that entire $5,000. But our understanding is she can only contribute 20% or $1,000. But schedule 1, line 16 shows the $5k amount. The only place we can see the $1k is on the Schedule C worksheet for qualified income deduction smart worksheet row 5e and we don’t need to submit that.
When we answer the questions about the SEP IRA, and we say we only want to contribute $1,000, it still says we can contribute up to another $4,000.
Last year, the number in the “business deductions and credits” section, it lists the actual amount she contributed to her SEP IRA, not her total net income as in this year. Maybe it’s a change in the tax law or the software but it still feels weird.
So bottom line is, just because she CAN contribute the full $5k, is that the right number to be on the form, or should it be the amount she wants to contribute?
I understand that this is outside any employer based retirement contributions.
