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New Member
posted Mar 21, 2021 8:36:53 PM

I am trying to reduce my Federal taxes by increasing SEP IRA contributions

I am trying to reduce my Federal Taxes by increasing SEP IRA contributions.  I am taking a standard deduction, married filing jointly, and I am a sole proprietor with no employees.  I have contributed $6,000 into my SEP so far for 2020 and have $84,000 of income from the business.  I currently have $2,800 in Federal Taxes. 

 

I have tried increasing my SEP IRA contributions by another $5,000 but it doesn't change my Federal Taxes Due.  Does anyone know why increasing my SEP IRA contributions isn't lowering my taxes?

 

Thanks for your help.

0 2 2040
2 Replies
Expert Alumni
Mar 22, 2021 6:07:24 AM

Your tax liability is most likely due to Self-Employment tax.  Increasing your SEP contribution can affect your income tax, but it will not reduce your self-employment tax.

 

 

Level 15
Mar 22, 2021 7:37:07 AM

Claiming any self-employed health-insurance deduction?  If so, additional SEP contributions are likely reducing the amount of self-employed health-insurance deduction that is permitted to be claimed.  The sum of Schedule 1 lines 14, 15 and 16 cannot exceed net profit from self-employment.