SEP IRA Contribution Increases AGI and Taxes Due

Forum|Forum|3 years ago
March 7, 2023
1 reply
51 views

Hi I'm a small business owner with no employees and have a SEP IRA I contributed a small amount of money to in 2022. I maxed out my Traditional IRA, so I thought getting a SEP IRA for additional tax deductions would be smart. But when I add my SEP contribution in TurboTax, my income increases as does my taxes owed. It looks like the tax increase is about 35% of what I contributed to the SEP. Don't understand what's going on. Help is much appreciated. Thank you!

ThomasM125

Level 15

It is possible that you have something like a qualified business income (QBI) deduction and the contribution to the SEP retirement plan is reducing that deduction which may increase your taxable income even after you deduct the SEP contribution. You will see the QBI deduction on line 13 of your form 1040.

Also, you may be over contributing to your retirment plans which would create a penalty. You would see that on line 8 of form 1040, schedule 2.

I suggest you look at your form 1040 both before the SEP contribution and after to see what is changing.

You can view your form 1040 and schedules 1 to 3 while working in the online version of TurboTax by following these steps:

Click on Tax Tools in the left menu bar
Click on Tools
Look under Other Helpful links….
Choose View Tax Summary
Look in the left menu bar and choose Preview my 1040
Scroll down the page to see form 1040 and schedules 1 to 3

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DarkMouthAuthor

Level 2

Thank you! I do have a QBI so maybe that's it. I checked Schedule 2 and Line 8 is empty. I did have an excess contribution on my Traditional IRA but Turbotax never notified me of an over-contribution for the SEP. I assumed they would be separate. Is there anything I could do? I'm being taxed at about 40% on my SEP contribution!

DaveF1006

Level 15

It would be helpful to have a TurboTax ".tax2022" file that is experiencing this issue.

You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions:

If using Turbo Tax software:

At the top menu in the black line at the top of the page go to Online.

From the menu, select Send Tax File to Agent.
You will see a message explaining what the diagnostic copy is. Click Send and then you will get a Token number.
Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.

If using online:

Click on Tax Tools in the left menu bar
Click on Tools>share my file with agent
press ok and you should get a token number

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

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