tax calculation error in TurboTax's 2025 tax year software that is causing my Schedule 1-A, Line 5 (Qualified Tips Deduction) to be incorrectly and substantially

[yuhsien32]

Dear TurboTax / Intuit Customer Support Team, I am writing to report a critical and verifiable tax calculation error in TurboTax's 2025 tax year software that is causing my Schedule 1-A, Line 5 (Qualified Tips Deduction) to be incorrectly and substantially reduced by my Solo 401(k) contribution entered on Schedule 1, Part II, Line 16. This error is directly contradicted by multiple IRS official publications and the statutory text of IRC § 224. Given that today is April 13, 2026, and the filing deadline is April 15, 2026, I urgently request a response and resolution within 24 hours. ________________________________________ 📌 I. Description of the Error Item Correct Amount TurboTax Calculated (Erroneous) Discrepancy Schedule 1-A, Line 5 Qualified Tips $4,194.00 $73.00 ❌ Under-reported by $4,121.00 Cause of Error — Solo 401(k) contribution on Schedule 1, Part II, Line 16 incorrectly used to reduce the "net profit from business" cap for Line 5 — The software is improperly applying my Solo 401(k) contribution (Schedule 1, Part II, Line 16) as a reduction to my "net profit from business," which serves as the deduction cap for Schedule 1-A, Line 5 Qualified Tips. This is factually incorrect and contrary to IRS law. I am unable to manually override or correct this calculation within the TurboTax interface. The error is entirely within TurboTax's automated calculation engine. ________________________________________ 📌 II. Controlling IRS Authority & Legal Basis Proving the Error The following IRS official sources unambiguously establish that Solo 401(k) contributions cannot and do not reduce Schedule C Line 31 Net Profit, and therefore cannot reduce the deduction cap on Schedule 1-A, Line 5: ________________________________________ 🔵 Authority #1 — IRS Schedule 1-A Official Instructions (2025), Line 5 Source: IRS Schedule 1-A Instructions (2025), Line 5 — Instructions for Schedule 1-A (2025), available at IRS.gov Relevant Text: "Qualified tip amount included in Form 1099-NEC, box 1; Form 1099-MISC, box 3; or Form 1099-K, box 1a. Do not enter more than the net profit from the trade or business." Legal Significance: The IRS explicitly defines the cap as "net profit from the trade or business" — this is the figure from Schedule C, Line 31, which represents gross business income minus allowable business expenses. Solo 401(k) contributions are NOT business expenses and are NOT deducted on Schedule C. Therefore, they cannot reduce the Line 5 cap. ________________________________________ 🔵 Authority #2 — IRS Publication 560 (2025): Retirement Plans for Small Business Source: IRS Publication 560 (2025), "Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)" Available at: link Relevant Section: "Deducting Contributions" — Self-Employed Individuals "If you are self-employed... do not deduct contributions for yourself on Schedule C (or Schedule F). Instead, deduct them on Schedule 1 (Form 1040), line 16." Legal Significance: IRS Publication 560 explicitly prohibits deducting Solo 401(k) contributions on Schedule C. Since Schedule C Line 31 Net Profit is calculated before any Schedule 1 adjustments, the Solo 401(k) deduction on Schedule 1, Line 16 has absolutely zero effect on Schedule C Line 31. TurboTax's behavior of using the Solo 401(k) amount to reduce the Line 5 cap directly contradicts this IRS instruction. ________________________________________ 🔵 Authority #3 — IRS.gov: Self-Employed Individuals — Calculating Your Own Retirement Plan Contribution and Deduction Source: IRS official webpage — "Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction" Available at: link Relevant Guidance: The IRS calculation worksheet clearly shows: Step 1: Start with Schedule C, Line 31 net profit. Step 2: Subtract the deductible portion of self-employment tax (Schedule SE). Step 3: The result is used to calculate the maximum Solo 401(k) contribution. Step 4: The Solo 401(k) deduction is then reported on Schedule 1, Line 16 — NOT subtracted from Schedule C. This confirms a strict one-way relationship: Schedule C Net Profit determines the Solo 401(k) limit; the Solo 401(k) does NOT flow back to reduce Schedule C Net Profit. ________________________________________ 🔵 Authority #4 — IRC § 404(a)(8): Statutory Law Source: Internal Revenue Code § 404(a)(8) — "Contributions of an employer to a plan for the benefit of a self-employed individual" Legal Significance: IRC § 404(a)(8) governs the deductibility of retirement plan contributions for self-employed individuals. Under this provision, such contributions are deductible as an adjustment to income on Form 1040 — explicitly not as a business expense deductible on Schedule C. No provision in § 404 or any related section authorizes the use of self-employed retirement contributions to reduce Schedule C net profit for any purpose, including the calculation of the IRC § 224 Qualified Tips deduction cap. ________________________________________ 🔵 Authority #5 — IRC § 224 (One Big Beautiful Bill Act): Qualified Tips Deduction Source: Internal Revenue Code § 224 — "Deduction for Qualified Tips" (enacted as part of the One Big Beautiful Bill Act, effective tax years 2025–2028) Relevant Provision (§ 224(b) — Limitation): The deduction under § 224 shall not exceed the net profit of the taxpayer from the trade or business in which the qualified tips were received. Legal Significance: The statutory text of § 224 uses "net profit from the trade or business" as the cap — the same figure as Schedule C, Line 31. Congress did not include any provision reducing this cap by retirement plan contributions. The Solo 401(k) deduction is a separate above-the-line adjustment under § 404, entirely independent of the § 224 cap calculation. ________________________________________ 🔵 Authority #6 — IRS Notice 2025-69: Guidance on IRC § 224 Qualified Tips Source: IRS Notice 2025-69 (issued 2025) — Guidance Regarding the Deduction for Qualified Tips Under § 224 Available at: link Legal Significance: IRS Notice 2025-69 provides detailed implementation guidance for IRC § 224. The Notice defines the "net profit" cap for self-employed individuals by reference to Schedule C reporting standards — the net profit figure before any Schedule 1 above-the-line adjustments (including retirement plan deductions). Nowhere in Notice 2025-69 does the IRS indicate that Solo 401(k) contributions reduce the § 224 deduction cap. ________________________________________ 🔵 Authority #7 — Federal Register Final Regulations (2026-07104) Source: Federal Register, Vol. [—], "Occupations That Customarily and Regularly Received Tips; Definition of Qualified Tips" Available at: link Legal Significance: The Final Regulations define "qualified tips" and establish the calculation mechanics for the § 224 deduction. The regulatory framework is built upon Schedule C net profit as the independent cap, with no interaction with retirement plan contributions on Schedule 1. ________________________________________ 📌 III. Summary of Legal Position CORRECT Calculation Flow (Per IRS Law): ══════════════════════════════════════════════════════════ Schedule C, Line 31: Net Profit from Business = [X] ↓ Schedule 1-A, Line 5 Cap = min(Qualified Tips Received, [X]) → My correct Line 5 amount = $4,194 ✅ ══════════════════════════════════════════════════════ Solo 401(k) Contribution → Schedule 1, Part II, Line 16 (ENTIRELY SEPARATE — does NOT touch Schedule C or Line 5 cap) ══════════════════════════════════════════════════════════ TURBOTAX ERRONEOUS Calculation Flow: ══════════════════════════════════════════════════════════ Schedule C, Line 31: Net Profit = [X] MINUS Solo 401(k) from Schedule 1, Line 16 ← ❌ ILLEGAL = Artificially reduced "net profit" = [Y] ↓ Schedule 1-A, Line 5 Cap = min(Qualified Tips, [Y]) → TurboTax Line 5 amount = $73 ❌ WRONG BY $4,121 ══════════════════════════════════════════════════════════ This error has no basis in IRS law, IRS publications, IRS notices, or the IRC. It represents a software calculation defect that is causing me direct financial harm of $4,121 in under-reported deductions. ________________________________________ 📌 IV. Specific Requests Given the extreme urgency (April 15, 2026 filing deadline — only 2 days away), I formally request the following: 1. ⏰ 24-Hour Response Deadline Please acknowledge this complaint and provide a substantive response no later than April 14, 2026 at [your local time]. 2. 🛠️ Immediate Software Fix or Manual Override Either: • (a) Issue an emergency software patch correcting the Schedule 1-A, Line 5 calculation logic to exclude Solo 401(k) contributions from the net profit cap calculation; OR • (b) Provide me with a direct manual override method to correct Line 5 to its accurate value of $4,194; OR • (c) Have a TurboTax Tax Expert directly correct my return. 3. 📋 Written Confirmation Provide written confirmation that this is a known software defect and that my corrected return showing $4,194 on Schedule 1-A, Line 5 is accurate and consistent with IRS law. ________________________________________ 📌 V. Impact of Non-Resolution If this error is not corrected and I file a return with TurboTax's erroneous calculation: • I will be under-claiming $4,121 in legally entitled deductions • I will be overpaying federal income taxes by approximately [calculate: \4,121 × your marginal rate] • I may need to file an amended return (Form 1040-X) at additional cost and effort — all due to TurboTax's software defect This outcome is entirely preventable if TurboTax takes immediate corrective action. ________________________________________ I trust that TurboTax / Intuit takes software accuracy and customer trust seriously, particularly for matters as consequential as federal tax compliance. I look forward to your prompt response within 24 hours. Sincerely, Yu Hsien Chang TurboTax Account Email: [yuhsien32@gmail.com] Tax Year: 2025 ________________________________________ Enclosures / References: 1. IRS Schedule 1-A Instructions (2025) — Line 5 2. IRS Publication 560 (2025) — p. [X], "Deducting Contributions" 3. IRS.gov — "Self-Employed Individuals: Calculating Your Own Retirement Plan Contribution and Deduction" 4. IRC § 404(a)(8) 5. IRC § 224 (One Big Beautiful Bill Act) 6. IRS Notice 2025-69 7. Federal Register Final Regulations 2026-07104 8. Screenshots of TurboTax calculation showing erroneous $73 on Schedule 1-A, Line 5