SEP/IRA 2023 Contribution limits and TUrboTax not letting contribution to be made.

[JimDimitri]

For 2023 SEP/IRA limits are 25% of income or $66000 whichever is less. No limit on amount of income. TurboTax is not letting that happen and states that since our Adjusted gross income is $500,000 (From sale of our business) no contribution is available. BUT that is for IRA's and Roth's NOT SEP/IRA's. Help - is there a box that needs to be checked or unchecked for this to happen?

[Anonymous_]

I'll page @dmertz

[dmertz · Accepted solution]

I assume that you are a sole proprietor or a partner in a partnership, otherwise the SEP contribution is reported on the business's tax return.  A SEP contribution is entered in the self-employed retirement section of the business section of TurboTax.  It is not to be entered anywhere under Deductions & Credits.

For a sole proprietor or partner, the limit for a SEP contribution is 20% of net earnings, not 25%.  Net earnings are net profit from self-employment minus the deductible portion of self-employment taxes.

[JimDimitri]

According to the IRS website.

Contributions an employer can make to an employee's SEP-IRA cannot exceed the lesser of:

- 25% of the employee's compensation,

- or$66,000 for 2023 ($61,000 for 2022, $58,000 for 2021 and $57,000 for 2020)

Also, Annual compensation limit. You can't consider the part of an employee's compensation over $305,000 when fig- uring your contribution limit for that employee. However, $61,000 is the maximum contribution for an eligible em- ployee. These limits increase to $330,000 and $66,000, respectively, in 2023.

But that is okay BUT the software is not allowing the contribution to be made due to a MAGI of $500,000 which is from the sale of the business (Capital gains). I have adjusted numbers so that the 2 of us (Partners) get paid a 1099-NEC amount so we can make a SEP/IRA contribution. Software says NO!

[dmertz · Accepted solution]

It seems that you have not understood my original reply.  Nowhere in the business section of TurboTax where the self-employed retirement section for entering a SEP contribution is located will TurboTax make any mention of MAGI (except maybe in regard to a QBI deduction, but that has nothing to do with entering a SEP contribution).

[JimDimitri]

Window in TurboTax Deluxe Mac

We have several 1099-Misc before now NEC inputs to our Schedule C's and then we decide the amount to be contributed into IRA, SEP/IRA or Roth's. This year with the sale of a business we intend to make a large SEP/IRA contribution but again software is not allowing it to happen.

[dmertz · Accepted solution]

Your screen grab indicates that you have entered this as a regular personal IRA contribution under Deductions & Credits, not as a SEP contribution.  As I said in my original reply:

"A SEP contribution is entered in the self-employed retirement section of the business section of TurboTax.  It is not to be entered anywhere under Deductions & Credits."

Please delete your erroneous regular IRA contribution entry and enter it in the business section as a self-employed retirement contribution.

[JimDimitri]

Thank you, finally found what you are describing in the income section. I seem to remember that I did that in the Deductions section in previous years.

Sorry!

It looks like no matter what I do paying ourselves a 1099-NEC income from the sale of the business and with the corresponding SEP/IRA contribution we pay more taxes. Dang!

Thanks again

Jim

[dmertz]

I don't see how it could be proper for you to issue any Form 1099-NEC to yourself.

[JimDimitri]

From a LLC. Sure.

Have done that for 20 years since we established our first LLC under guidance from a retired IRS investigator!

Jim

[dmertz]

If the LLC is a disregarded entity, the business's income goes on Schedule C (or Schedule F for a farming business) without any Form 1099-NEC except for those Forms 1099-NEC issued to you by other companies.

If the LLC is a partnership, the partnership is required to file Form 1065 and your income from self-employment is reported to you in box 14 of Schedule K-1 (Form 1065), not on Form 1099-NEC.

If the LCC is an S corp you are not self-employed and your wages are reported to you on Form W-2.

[JimDimitri]

I have tried that in the past and can not get any numbers to show up in box14.

probably my error in how data is entered so we do 1099-misc now NEC.

Jim

[nothguorb]

@dmertz thanks for your insight here. I'm hitting the same problem.

Could you help me find the "self-employed retirement section of the business section"? Is that in the "wages and income" section?

[ThomasM125]

I believe you are looking for the Self-employed Retirement section that you will find in the business section of TurboTax, on the screen that says Let's gather your business info, it will be in the Less Common Business Situations section: