I have earned income of: $6,941 (on Schedule C)
The ROTH IRA Computation Limit Worksheet shows my Earned Income as: $4,450 (Block 7)
For a difference of: $491.
When entering my 2016 Roth IRA Contributions ($2256 for me and $4,686 for my wife) Turbo Tax reports an overpayment because it is working on the ROTH IRA Computation Limit Worksheet instead of the $6,941 from Schedule C.
Why isn't the $6,450 from IRA Worksheet using the same $6,941 as Schedule C?
Your earned income for Roth contribution purposes also takes into account 1/2 of your self-employment tax.
Net income from Schedule C= $6941
Less 1/2 of SE tax= (490) = {($6941 *.9235) *.153}/2
The result in Turbo Tax seems correct.
Self-employment income. If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:
The deduction for contributions made on your behalf to retirement plans, and
The deduction allowed for the deductible part of your self-employment taxes.
Your earned income for Roth contribution purposes also takes into account 1/2 of your self-employment tax.
Net income from Schedule C= $6941
Less 1/2 of SE tax= (490) = {($6941 *.9235) *.153}/2
The result in Turbo Tax seems correct.
Self-employment income. If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:
The deduction for contributions made on your behalf to retirement plans, and
The deduction allowed for the deductible part of your self-employment taxes.