Peter H1
New Member

Self Employment Earned Income Calculation for determining the maximum yearly contribution to a Roth IRA

I am self employed. Turbo tax, in determining my Earned Income for the purposes of calculating the upper limit for a yearly contribution for a Roth IRA, uses the following algorithim:

 

Schedule C line 31 "Net Profit" - 1/2 Self Employment Tax.

I am wondering if this is the correct calculation... why is 1/2 Self Employment tax subtracted from Net Profit?

Isn't Net Profit = Earned Income?

 

I posed the question to both Copilot and Gemni AIs and both, while acknowledging that deducting 1/2 the employment tax is appropriate for the Earned Income Credit calculation, it should not be included in the calculation of Earned Income for the purposes of the limit of a Roth IRA contribution. Is this an issue with the Turbo Tax programming?

 

Thanks in advance.