No, this is not a mistake. In the case of a self-employed taxpayer, the tip deduction is legally capped at your Net Income (Line B3), not your Gross Net Profit (Line B1). This is why the box is checked with an X.
The law says that the tip deduction for a business owner can't be more than the money the business makes.
- Line B1 (Net Profit): This is your income minus your direct business expenses, as shown on Schedule C, Line 31.
- Line B2 (Adjustments): These are “above-the-line” expenses the IRS counts as part of being self-employed. The most common is the deductible part of your Self-Employment Tax (usually 50% of what you paid).
- Line B3 (Net Income): This is your taxable profit after those required adjustments are taken out.
Your tip deduction can’t be more than your net business income after adjustments (line B3). Since your tips are higher than your profit, TurboTax is applying this limit correctly.
@LLCDriver
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