TurboTax says I can open a traditional Ira for $7000 this year...I don't think this is correct

[Beagleman58]

Good Morning All
I am self-employed in primarily a wedding based business, and although I did some business during both 2020 and 2021, I also collected unemployment insurance.

Self Employment
On my Schedule C I'm reporting gross sales of $27,647, and an additional $1348 was reported as 1099 Non-employee wages, so my gross revenue was $28,995.

After deduction all of the common expenses, including depreciation, I came down to a tentative profit of $2570, which was absorbed by my home office deduction.

Unemployment Insurance
I received $14,659 as reported on a 1099 G Form

Since Traditional IRA contributions must be from active income - wages, profit from business, etc, I was surprised when TurboTax indicated I could open a $7000 IRA for 2021 based on this income (I'm 63 years old)
and I'm not sure it's correct.  It'll be a much bigger problem if I open the IRA and have it disallowed later.

Would appreciate any clarification.

Thank you.

[AmyC · Accepted solution]

You do qualify. Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) states:

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.

Compensation includes earnings from self-employment even if they aren’t subject to self-employment tax because of your religious beliefs.

[Beagleman58]

Thanks so very much for taking the time to answer my question!

Best to you!