Yes. It may have affected EIC. Or, you may have contributed more than you were entitled to, so are being penalized.
Thanks SweetieJean, I did receive an inheritance in 2018 that I deposited into my bank account and of course I received a 1099-INT that showed interest. As far as I know, I did not claim the EIC on my TurboTax return. My self employed status was because of a side business I have that operated at a loss in 2018. I'm at a loss as to why this increased tax liability is calculating.
You must have earned income from working, or a PROFIT from self-employment to claim an IRA contribution. A cash inheritance does not qualify. Have you already paid into the IRA?
@dmertz Can you advise OP how to undo the IRA?
Did you actually make the excess IRA contribution or did you just enter an IRA contribution into TurboTax in anticipation of making the contribution?
@SweetieJean I've not actually contributed to an IRA. I'm just experimenting with TurboTax at this point.
You can remove all IRA contribution entries by deleting the IRA Contributions Worksheet. In online TurboTax click Tax Tools -> Tools -> Delete a form, then click the Delete link next to IRA Contrib Wks.
@dmertz Thanks for your suggestion. I'm getting closer to that action
@SweetieJean Am I understanding right that I can't use unearned income to make an IRA contribution? My income comes from Social Security, Pension and IRA distributions. I have savings, of course, that isnt' tied to the market. Can I not use money from savings to make a contribution?
Right. It doesn't matter what account you take the contribution from BUT you need earned income from wages or a Net Profit on Schedule C for self employment income to make a IRA contribution.
@VolvoGirl Thanks for clearing that up for me. So, if TurboTax accepts the contribution, is the increased tax liability a penalty? Would the same rules apply if I wanted to reduce my taxes by contributing to an HSA?
TurboTax doesn't accept or deny a contribution, TurboTax permits you to report whatever IRA contribution you actually made. TurboTax will determine from the rest of your tax return whether or not you were eligible to make the contribution and, if you were eligible to make the contribution, how much of that contribution is deductible. If it's excess contribution, you MUST report it so that TurboTax can prepare Form 5329 to determine the excess contribution penalty.
An HSA contribution does not require you to have any compensation or other income to make the contribution, but you must be an eligible individual to make an HSA contribution. See IRS Pub 969, "Health Savings Accounts (HSAs)" for details: <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p969.pdf">https://www.irs.gov/pub/irs-pdf/p969.pdf</a>
@dmertz Thanks for your help and for pointing me in the right direction.
See IRS Publication 590A