topic TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution in Get your taxes done using TurboTax

TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

prfssr53 — Sun, 29 Mar 2020 23:01:09 GMT

I had $717 net income from tutoring last year (2019), after mileage expenses of $183. Since this income was not wages, it was self-employment income. I entered this income and expenses into TurboTax and it (the net) shows up correctly in the "Business Income and Expenses (Sch C)" line of the "Business Items" income category on my TurboTax 2019 Income Summary page. According to the IRS, self-employment income is earned income. This tutoring income was my only earned income last year, and so I should be able to contribute all of it to my Roth IRA as a deductible contribution. I entered into TurboTax that I contributed $717 to my Roth IRA. TurboTax came back with a message that I don't have enough earned income, and this $717 will be considered an excess contribution. What do I need to do to fix this?

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

VolvoGirl — Sun, 29 Mar 2020 23:05:40 GMT

If you have self-employment income you can only contribute up to your net profit reduced by the deduction allowed for the ER portion of your self-employment taxes. See IRS publication 590A

https://www.irs.gov/pub/irs-pdf/p590a.pdf

So check 1040 Schedule 1 line 14. You have to deduct that amount from your Schedule C Net Profit. That will give you the allowed contribution for the 1099Misc income.

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

prfssr53 — Sun, 29 Mar 2020 23:06:18 GMT

Clarification: I don't know about "deductible"; all I care about is that this Roth IRA contribution is "allowed", not an excess contribution.

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

prfssr53 — Sun, 29 Mar 2020 23:12:07 GMT

I adjusted my Roth contribution down by the amount shown on 1040 Schedule 1 line 14 ($51), from $717 to $666, and I get the same error message back from TurboTax.

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

VolvoGirl — Sun, 29 Mar 2020 23:14:44 GMT

You have to subtract 1/2 of the SE tax from the Net Profit. So if you have a Net Profit of 717 your SE tax is about $101. Half is $51. You have to subtract 51 from the 717 = $666 for the max you can contribute. You have to actually take the excess out of your ROTH account.

Look at Schedule 1 line 14. You have to subtract that from the 717 to get the amount allowed to contribute.

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

VolvoGirl — Sun, 29 Mar 2020 23:15:55 GMT

I was typing the same time that you posted. Don't know why. Try reducing it by another dollar. Must be some rounding.

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

prfssr53 — Sun, 29 Mar 2020 23:18:46 GMT

What you just described is exactly what I did: I told TT I contributed $717 – $51 = $666 to my Roth IRA, and TT (a few pages later) told me that this $666 would be considered an excess contribution.

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

prfssr53 — Sun, 29 Mar 2020 23:20:16 GMT

OK. I'll try that.

However, note that the message from TT said that $666 would be an excess contribution. Should not the error message have said that, for example, $1 would be considered an excess contribution?

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

VolvoGirl — Sun, 29 Mar 2020 23:20:49 GMT

The whole amount 666 is excess?? Do you have a lot of other income? @dmertz

Are you married? Be sure your schedule C and contribution are listed for the same person.

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

prfssr53 — Sun, 29 Mar 2020 23:22:36 GMT

I'm retired. I have a lot of income, but my only earned income last year was from tutoring. Isn't that all that matters?

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

VolvoGirl — Sun, 29 Mar 2020 23:26:59 GMT

See publication 590A page 39 for ROTH contributions

https://www.irs.gov/pub/irs-pdf/p590a.pdf

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

macuser_22 — Sun, 29 Mar 2020 23:32:27 GMT

If Schedule C income is your only income then how much is the 1040 Schedule 1 line 3 minus line 14?

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

prfssr53 — Sun, 29 Mar 2020 23:32:38 GMT

Thank you very much. My mistake. The last time I tutored, I must have had an AGI that put me under the limit. I've been taking a lot of extra distributions from my Traditional IRA, and converting the after-tax amount to my Roth, so I've been incurring a lot of extra income that I must not have had last time I did any tutoring.

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

prfssr53 — Sun, 29 Mar 2020 23:36:37 GMT

My 1040 Schedule 1 line 3 minus line 14 is $717 – $51 = $666. As I said, this was my only earned income, but my income from pension and IRA distributions is considerably over the max Roth IRA contribution limit. I thought only earned income counted. TurboTax correctly warned me. Thanks again.

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

SeattleEntrepreneur — Sun, 12 Jul 2020 21:17:42 GMT

I also can't get TT to recognize my self-employment income and I have ZERO other income..

Re: TurboTax apparently not considering my self-employed income as earned; not allowing a Roth IRA contribution

VolvoGirl — Sun, 12 Jul 2020 21:18:42 GMT

How much Net Profit do you have?

For self-employment income you can only contribute up to your net profit reduced by the deduction allowed for one-half of your self-employment taxes. See IRS publication 590 http://www.irs.gov/pub/irs-pdf/p590a.pdf

So check 1040 Schedule 1 line 27. You have to deduct that amount from your Schedule C Net Profit. That will give you the allowed contribution for the 1099Misc income.