I had about $5000 in self-employment income. TurboTax calculated my SEP maximum contribution to be equal to that--100% of my net self-employment income. IRS pub 560 says that should be 20% with some adjustments for Self-employment tax. This can't be correct--please explain how to fix this.
If by net self-employment income you mean net profit minus the deductible portion of self-employment taxes, the result you are seeing is the result of marking the Maximize box for an individual 401(k) contribution. Either go back and tell TurboTax that you made a contribution to an individual 401(k) then unmark the Maximize box for that, or just switch to forms mode and remove that mark, leaving only the Maximize box for a SEP contribution marked.
Please go back through the section under Less Common Business Situations for entering your retirement plan;
1. On the First Screen it will ask if you had a Keogh, SEP or SIMPLE contribution, Select YES
2. On the next screen choose yourself (if it is your business and contribution) and select CONTINUE
3. On the next screen, (Your Contributions), you should put a 0 in the SEP Box if you want it to calculate the contribution without regard to any contribution you have made, and check the Maximize Box.
4. On the next screen, Adjusting Self-Employment Income, you should also have -0- in this field, if your $5000 net income is correctly reflected on your Schedule C already.
5. The last screen will indicate only the Maximum Allowed Contribution to your plan. You will need to choose the BACK button until you get back to the screen referenced in # 3 above and fill in the amount you will be making.
Yes. Just be sure that, if you have employees, that contributions for all employees, including yourself as self-employed, are based on the same base contribution rate (with the special calculation done to determine your own contribution percentage based on the base rate).