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Level 2
December 25, 2022
Question

Is TurboTax calculating Taxes wrong?

  • December 25, 2022
  • 5 replies
  • 0 views

Hello,

after losing my job in 2021, I started a small business.

In 2022 my income was $94,082.00.

According to the IRS tax table I should pay Federal Taxes of $15,213.50 +$1,201.68 ($15,213.50 plus 24% of the amount over $89,075), but TurboTax Home $ Business is showing two different numbers: $13,294 and $22,082.

Am I doing something wrong?

 

5 replies

VolvoGirl
Level 15
December 25, 2022

Yep, 13,294 is the self employment tax.  94,082x92.35%x15.3% = 13,394.  

You pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C.  You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400).  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

 

The SE tax will be included in your tax due or reduce your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 23.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 15 which flows to 1040 line 10.

 

Then for your regular income tax.  If you have capital gains or qualified dividends the tax is not taken from the tax table but is calculated separately from schedule D.  The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet.  It does not get filed with your return.

 

In the online version you need to save your return as a pdf file and include all worksheets to see it.

 

For the Desktop version you can switch to Forms Mode and open the worksheet to see it.  Click Forms in the upper right (upper left for Mac) and look through the list and open the Qualified Dividends and Capital Gain Tax Worksheet.

Critter-3
Level 15
December 25, 2022

You are forgetting about the SE taxes on top of the Federal... switch to the FORMS mode & review the 1040 & SE forms. 

RCPWAuthor
Level 2
December 25, 2022

So, the tax percentage is actually 23% then?

Need to get more into that.

 

Mike9241
Level 15
Level 15
December 25, 2022

your business income of                                                                           94082

is reduced by 1.2 the SE tax of 13294                                                      6647

leaving                                                                                                          87435

you are entitled to a standard deduction of                   12950 

and a QBI deduction of 20 % of the 87435   

see line 13 of the 1040                                                       17487           30437

leaving taxable income of                                                                        56998

 

tax tables say the tax on this is                    8152      +       the SE tax of  13294 = 21446 

can't explain the difference except for possibe penalties for not paying sufficient estimated taxes      or

you have other income you have not told us about.                       

Mike9241
RCPWAuthor
Level 2
December 25, 2022

I wished I had other income.

So, you are saying the calculation from TurboTax in incorrect?

VolvoGirl
Level 15
December 26, 2022

No.  Turbo Tax is right.  But we can't see your return.  You might have a underpayment penalty on line 38.  Switch to Forms and look at the 1040.  Which lines don't you understand?  

VolvoGirl
Level 15
December 26, 2022

Did you send in any quarterly estimated payments to cover the tax and self employment tax?   If you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Even if you are getting a refund you can still owe a penalty for not paying in evenly during the year.  Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. It is included in your tax due or reduces your refund.  It's on 1040 line 38.