IRS = no self employment tax for 2016 due to negative NET Schedule C income. TurboTax calculates SE tax based on GROSS income. How do I correct Schedule SE in TurboTax?

I went through the IRS calculator and it says no self employment tax due. TurboTax seems to be taking the gross income from line 7, Schedule C and ignoring the net income (loss) shown on line 31, Schedule C. This problem did not occur in 2014 or 2015, but just shows up in the 2016 version. How do I correct this?

Answer

Somewhere you have a mistake, so it would be best to find it. Perhaps you have entered some income twice, in two different places.

You can go to the forms menu, open schedule SE/taxpayer, and then see what amount is listed there. alt-clicking on that amount will pop up information about where that amount came from.

I'm guessing you might have entered some income twice based on the fact that the se income seems to be about the same as your gross income. Perhaps you entered a 1099, but did not tie it to the Schedule C, then reentered the income on Schedule C, or entered both 1099 income and also income "not listed on a 1099" that was the same income.

Anyway, you catch the drift. Schedule SE does take the net income from Sched C, along with any other sources of SE tagged income. One way you might verify this is to add a large (negative) expense to Sched C. This should raise your net income above the threshold for SE tax, and you should see the amount of that tax rise, proving that expenses on schedule C affect net income, and therefore SE taxable income. You can also temporarily override numbers, including net income on Sched C or SE tax, but this will have the effect of hiding the error rather than resolving it, which could have unintended consequences like tax letters or audits, which none of us like.

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