My wife & I are using Turbotax Home & Bus. for taxes.When I add my wife's SEP ira contribution (~8k) the tax reduces by $60.Is it a glitch?Solo401k ($8k cont.) saves ~2k

[gogators]

My wife receives 1099NEC and I am on W2. We are trying to maximize IRA/401k contributions. We do not have any employer 401k or IRA. We have our own HSA and IRA accounts. We are looking into opening a SEP IRA or a Solo 401k for her. Adding $8000 to SEP IRA (20% of her income) reduces the taxes by $60 but adding the same to a solo 401k instead saves about $2000. Is this a software glitch? Any suggestions on what could be the issue?

[AliciaP1]

I cannot recreate your issue in a test return.  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: 

In TurboTax Online, go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 

In TurboTax CD/Download versions, go to the black panel on the top of your screen and select Online. 

1. Scroll down to and select Send tax file to Agent. 
2. You will see a message explaining what the diagnostic copy is.  Click send through this screen 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.   

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.

@gogators 

[dmertz]

TurboTax properly implements the Deduction Worksheet for Self-employed from IRS Pub 560 on its Keogh, SEP and SIMPLE Contribution Worksheet.

Did you enter an $8,000 elective deferral to an individual 401(k) that you failed to remove and TurboTax is able to apply only the remainder of any net earnings as the SEP contribution?  Review the Keogh, SEP and SIMPLE Contribution Worksheet.

Delete your wife's Keogh, SEP and SIMPLE Contribution Worksheet, then revisit the self-employed retirement section, marking only the Maximize box for her SEP contribution.

[gogators]

Thanks @dmertz @AliciaP1  for your answers. Here is what is happening in a bit more detail. We both have put $6000 each in our Traditional IRA's ($12,000 total). I entered this info in the "Personal-Deductions & Credits". After doing this when I add the max contributions for SEP IRA it only reduces the taxes by $60 as my wife's traditional IRA contribution is now getting classified as "Nondeductible IRA" and form 8606 is generated. If I answer NO to "Is (my wife) covered by a retirement plan at work?", then we get the full $12000 IRA deduction and also the SEP IRA reduction. It is coming down to answering just this one question and I am not sure how to answer it. My wife does not have any other job. She does not have any other 401k/SEP IRA except a Traditional IRA. How do we answer this question "Is (my wife) covered by a retirement plan at work?" if she opens a new Solo 401k or a SEP IRA?

[dmertz]

TurboTax will automatically treat your wife as covered by a workplace retirement plan if you enter any self-employer retirement contribution for her.

[gogators]

If I answer NO to the question "covered by a workplace retirement plan", then I can see the reduction in the taxes (due to the SEP IRA and traditional contributions) and turbotax does not give any errors. My employer does not offer any retirement plan and my wife has no employer as she is an independent contractor. The only thing I am still a bit confused about is whether she can answer "NO" to that question if she opens a SEP IRA.

[dmertz]

An individual who is an independent contractor is their own employer.  The entities they perform work for are their clients.