Sunday, March 31, 2013

Turbo Tax and SEP IRA

For some odd reason, I noticed that Turbo Tax 2012 doesn't have any step-by-step wizards for handling SEP IRA contributions. You can search for the tax form and can find it yourself within the software tool. The main issue that isn't covered is how to calculate how much you're allowed to deduct with self-employed IRA's. Normally you are allowed to deduct up to 20% of self-employment income, but you have to use the IRS' Publication 560 to subtract the employment tax.  You can scroll down the entire contributation rate table and max out at the 25%, which using the reduced rate table, appears to push you down to 20%.

If you factor this amount, divide the amount you're to contribute the SEP IRA by your total self-employment income, you should come up with the 18.587045% mentioned in the Wiki article.

Note: this isn't tax advice but does seem to be a weird oddity in the tax code that can only be understood by correlating multiple sources to understand what's going on.

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