Get your taxes done using TurboTax

The $500 can be excluded from income. You enter your W-2 form to report the $500. I assume you don't have a reporting tax form for the additional $18,000, so that is what you need to report in the miscellaneous income section in TurboTax as a positive number:

On the next page you will see the option for Other Income not already reported on a Form W-2 or Form 1099:

You work through that section to report the $18,000 income as a positive amount. Next , you return to the Miscellaneous Income section referenced above to make the $18,500 negative adjustment. On the next page after your choose Miscellaneous Income you will choose Other Reportable Income:

That is where you enter the -$18,500:

You enter the IRA contribution in the Deduction and Credits section of TurboTax under Retirement Plans and Investments