Not showing earned income for 2022 correctly

[rcd127]

I received about 50K in income from self employment on a 1099-NEC form. I am inputting my taxes in the desktop version and when I getting to adding my IRA deductions i get this "Your traditional IRA contribution of $7,000 is more than your earned income of zero." Why is this????

[Mike9241]

Is schedule C showing a loss?  

[VolvoGirl]

Do you show a profit on Schedule C for your self employment?   For an IRA contribution.  If you only have 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

[rcd127]

Yes my schedule C is showing a loss. So that means I cannot deduct for an IRA contribution correct?

[VolvoGirl]

Correct.  You need a profit to be earned income to qualify for the EIC and other credits.  Be aware, if you have self employment income you can get in trouble for not reporting all your expenses to qualify for the EIC.

[dmertz]

Not only are you not permitted to deduct an IRA contribution, with no profit and no other compensation from another employer you are not permitted to make an IRA contribution at all.  Such a contribution would be subject to a 6% excess-contribution penalty for each year that the excess remains.

[rcd127]

Yes that is what your software is telling me. So i went to my trading accounts and requested an excess contribution disbursement.

[rcd127]

I requested the 7000 excess contribution. They only sent me 5270 due to losses on the 7000. I put the 5270 in the software as returned contribution and it is still telling me I have  a penalty of 420 which is 6% of the 7000. How do I fix this?

[Critter]

If the $5270 represents the entire balance of your IRA account then in the program do NOT enter the $7K contribution at all.  OR you can enter it but you will also indicate you removed the entire 7K.  Either way you are covered. 

[dmertz]

Even though the adjusted amount of the distribution was $5,270, the amount of contribution returned was $7,000, not $5,270.  When TurboTax asks how much of the contribution was returned, enter $7,000.