SEP maximum contribution

[dgro]

My 2020 self employment gross/total income will be approx $44K

My 2020 total business expenses will be approx $10K

Giving a net income of approx $34K

Why does SE TurboTax tell me that I can deduct a maximum $6,346 SEP contribution?

IRS states:  Contribute as much as 25% of your net earnings from self-employment (not including contributions for yourself), up to $57,000 (for 2020 and $56,000 for 2019).

Which mean I should be able to contribute $34K * 0.25 = $8,500

Why the $2,154 difference in your calculation?

[Critter]

You have the calculations a bit off ... it is NET SE but you also have to deduct the 1/2 SE tax deduction ...

Tax treatment of excess contributions. Excess contributions are your contributions to an
employee's SEP-IRA (or to your own SEP-IRA)  for 2019 that exceed the lesser of the following
amounts.
• 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment).
• $56,000.

SO using your numbers :

44K - 10K = 34K  x .153 = 5202 / 2 = 2601 

34K - 2601 = 31399 x 20% = 6280

8500 - 6280 = 2220 the missing amount

LOOK at the worksheet in the TT PDF file to see the exact calculation. 

[dgro]

Thanks for the clarification.  

True, I didn't deduct the SE taxes from net income.

[dmertz]

dgro, you also mistakenly multiplied by 25% instead of the proper 20% for a self-employed individual.  It's a common error made by self-employed individuals making their first SEP contribution.

[JamesKonzelmann]

Your system is terrible. I am trying to find out how to use your system to calculate the maximum SEP contribution for my wife's self-employment business and to calculate the maximum traditional IRA calculation for my self-employment business. In prior years, the question regarding such contribution calculations and the calculations themselves arose during the completion of entering revenue and expense information for each self-employment business. When I use the HELP questioning aspect of your program, it directs me to an error in NY State filing for 2022. Neith my wife nor I file NY State returns since we live and have our businesses in NJ. 

I need where to go in your programs to have the maximum contributions calculated by Turbo Tax. 

Thank you.

[SantinoD · Accepted solution]

To calculate the maximum SEP contribution and to calculate the maximum traditional IRA calculation, please follow the steps below.

SEP IRA Contributions- Once your self-employment income is entered:

1. Sign in to your TurboTax account
2. Open your return
3. Search SEP IRA contributions
4. Select the Jump to link in the search results
5. In the Self-Employed Retirement Plans screen, select No to the question, Did you contribute to an Individual or Roth 401(k) plan?
   • If you get the message Self-Employed Retirement Plans are only for self-employed individuals (i.e., those filing Schedules, C, F, or K-1), this means that you haven't entered your self-employed income yet. Once you've entered your income, you can come back to these instructions
6. In the Keogh, SEP, and SIMPLE Contributions screen, select Yes
7. Answer any additional questions until you get to the Your Contributions screen, where you’ll be able to input your SEP IRA contributions

To enter contributions for your Traditional IRA, follow these steps...

To enter your 2022 IRA contributions (money you put into your IRA):

1. Sign into your TurboTax acccount
2. Open or continue to your return
3. In the search bar, type ira contributions and select the Jump to link in the search results
4. We'll take you to the Traditional IRA and Roth IRA screen, where you can start the IRA interview

@JamesKonzelmann