K-1 ordinary income change not affecting 1040 refund

[david7720]

I've been using Turbotax for over 24 years. Something new has happened. When finalizing our 1120S, I realized the Ordinary Income on the generated K-1 to me would be reduced by about $2800. When making the adjustment in TurboTax Premier 1040, I was expecting a larger refund. The NY State refund increased, but not the Federal. This made no sense, unless there has been an IRS law change, or a defect in the Turbotax program. Just as a test, I started changing the K-1 'Ordinary income' on the 1040. I added $3,000, then $6,000 to the ordinary income on the K-1. No change in the Federal refund, only the NY refund. Not until I added $8,000 did the refund change downward.  Does anyone know why this would be? TIA!!!

[PatriciaV]

Do you have other K-1 income on our return? Any passive loss carryovers from last year? It's possible that other factors on your return are influencing the taxable income calculation that includes the entry from your K-1. Form 8582 displays some of these calculations, which may help you test the changes you're seeing.

[david7720]

Thank you so much for responding! We don't have any other K-1 income or passive loss carryovers. I opened the various pages of Form 8582. All entries are blank except for page 3 Part IX column (c) Ratio, which has an entry of 1.0

The only form that Turbotax says isn't ready yet for filing is 4136, but I wouldn't think that's causing the issue. Any other suggestions would be greatly appreciated.

[ThomasM125]

I'm not sure why your tax isn't changing until you enter a certain amount of income, but you can look at your form 1040 to see what is going on after you enter different amounts of income. Take a picture of the form before and after you make an income adjustment and see what is changing, that may enlighten you as to why your tax is not increaseing the way you expect.

You can view your form 1040 and schedules 1 to 3 while working in the online version of TurboTax by following these steps:

1. Click on Tax Tools in the left menu bar
2. Click on Tools
3. Look under Other Helpful links….
4. Choose View Tax Summary
5. Look in the left menu bar and choose Preview my 1040
6. Scroll down the page to see form 1040 and schedules 1 to 3

[david7720]

Thank you for taking the time to reply. I have changed the K-1 income numbers as an experiment, but the Federal refund amount doesn't change on the 1040. Adding $3,000 or $6000 to the K-1 ordinary income does nothing. It's not until changing the K-1 Ordinary income by $8,000 that the Federal refund amount changed on the 1040. I've using Turbotax for over 24 years, and this has never happened before.

[AliciaP1]

It would be helpful to have a TurboTax ".tax2022" file that is experiencing this issue.

You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions: 

In TurboTax Online, go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 

In TurboTax CD/Download versions, go to the black panel on the top of your screen and select Online. 

1. Scroll down to and select Send tax file to Agent. 
2. You will see a message explaining what the diagnostic copy is.  Click send through this screen and then you will get a Token number. 

Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.   

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@david7720 

[david7720]

Token number 1078335.

To be specific I'm using Turbotax premier.

Here's what happens: I open the form K-1 SCorp Williams Lawn Care, Inc.

Then I go down the Part III, and lower the K-1 Ordinary income from $3925 to $1057.  The NY refund goes up, but the Federal refund stays the same.

I can't thank you enough for your help!

I've been using Turbotax since they bought out the old Parson's product over 24 years ago.

[AliciaP1]

Since you have your retirement contribution maximized, the contribution is reducing your tax due to $0.  Your federal refund is your total federal income tax withholdings and your refundable credit amounts.  

You can see the effect of the calculation on your Form 1040 line 20. 

To do this in TurboTax Online you can follow these steps:

1. Within your return, click on Tax Tools on the black menu on the left side of the screen.
2. Click on Tools.
3. Click on View Tax Summary. 
4. Click on Preview my 1040 in the black menu bar on the left.
5. Scroll through for the line item you need.

To do this in TurboTax Desktop you can follow these steps:

1. Within your return, click on the Forms icon in the upper right of the screen to switch to Forms mode.
2. In the menu bar on the left select Form 1040.
3. Scroll through in the preview window for the line item you need.

@david7720 

[david7720]

Thank you so much for the reply!

It’s been a long time since my wife and I contributed to our Roth IRA’s.  We maximize our SEP-IRAa’s every year on the 1120S. Initially I was confused by your saying our ‘retirement contribution was maximized’. Since there never used to be any ‘tax credit’ years ago on Roth IRA contributions, this was confusing me, because there’s no initial income tax break when contributing to a Roth.  I was surprised to see it coming up when preparing the 1040.  We each put in $3000 to our Roth IRA’s this year. To ‘maximize our contribution.’, it would need to be $6,000 each into the Roth IRA’s with no tax benefit on the return.

Do I understand this correctly to be something new in the last few years, that the IRS is giving you a tax credit during the same year you contribute to the Roth IRA? On our return, it’s not the $6,000 that was maximized, but this relatively new credit was maximized. And then this limited the small reduction in K-1 income?

I’m so grateful for the help you’ve given so far!

[AliciaP1 · Accepted solution]

Yes, the Credit for Retirement Savings Contributions is what is reducing your income.  It is not a refundable credit so it doesn't increase your refund.

@david7720 

[david7720]

Thank you so much for your help!!

[ulises78]

@AliciaP1 

I have a very different scenario, where my income tax return is going up by quite a bit after adding a K1 for a partnership that was dissolved in 2022 (I was a Limited Partner).

There is a gain in the K1, where I can use the  carryover losses from previous years and from other deals I have as well.  So I was expecting my federal tax return to stay flat, rather than going up.

I just want to make sure the program is doing the right thing and I won't have to return that "extra" money later.