topic Self-Employment tax and retirement questions in Business & farm

Self-Employment tax and retirement questions

giantovenbean — Tue, 09 Mar 2021 23:34:52 GMT

Hello. My wife and I both have side businesses in addition to our regular full-time jobs, and have used TT Home and Business to prepare our taxes for several years now.

This year, as you can see in the screen shot, TT gave me a number for "Business Taxes" that it had never given me before (previous years were $0).

That is my first question: I don't understand what that number is or where that number came from? And how does it effect my overall Federal tax bill?

The second question is that my wife would like to contribute to a SEP IRA to reduce her pre-tax business income. My understanding is that her contribution is limited to 25% of her gross business income, which was $20,600. However, Turbotax is suggesting $7811 as the maximum, which seems far too high. I have gone through the numbers several times and that is what it goes, so I am not sure what that is all about, either?

I would use Turbotax Live, but because we live in separate states, we have to use the PC based product, so that we can file our separate state returns. So, any advice you can give me, or any way I can access the live advice while using the downloaded product would be much appreciated.Turbotax 2020 screenshot

Re: Self-Employment tax and retirement questions

DavidD66 — Wed, 10 Mar 2021 00:23:50 GMT

Self-employment tax essentially is both halves of the social security and Medicare tax. The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). It looks like you had a loss last year, so you would not have paid any self-employment tax, as it is assessed on the net income from self-employment.

It's hard to say why the program is saying that your wife could contribute $7,811 to a SEP IRA, based on such limited information and without the ability to troubleshoot real time. You are correct that a SEP contribution is limited to 25% of qualified income; however, after deducting the potential SEP contribution, it works out to more like 20%. It may be that the program is telling your wife that she can contribute $6,000 to a traditional IRA and another $1,811 to a SEP IRA.

Re: Self-Employment tax and retirement questions

giantovenbean — Wed, 10 Mar 2021 04:20:55 GMT

Thank you, Dave! That's very helpful information about the Self-Employment tax.

Is there any way at all to let someone from TTx look at my work while using the Desktop product? I could swear I did that in previous years.

Re: Self-Employment tax and retirement questions

DawnC — Wed, 10 Mar 2021 04:58:50 GMT

If you want to have access to tax experts that can review your return, you can start a self-employed tax return in TurboTax Online (you don't pay until you file) and enter your tax data into the online software. You can still file using the desktop software later if you prefer.

If you have self-employment income, you can contribute a certain amount of the profits from your business to special retirement accounts for you and your employees. You can contribute to a Simplified Employee Pension (SEP) IRA as much as the lesser of 25% of your net earnings or up to $57,000 for 2020. You might want to delete the Keogh, SEP, and SIMPLE Contribution Worksheet from TurboTax and revisit the self-employed retirement section.