Net Operating Loss and Roth COntributions
IF you have a schedule C and show a profit on line 31 for 2020 but then it becomes a loss passed through on schedule 1of the 1040 due to a Net operating loss from 2019 that is being carried forward, can you still make a Roth IRA contribution based off of the profit on line 31 of the schedule C? Or does the NOL erase your abilities to do so?
Permalink Submitted by Alan - IRA critic on Mon, 2021-04-19 15:47
If the NOL is greater than your Sch C income, you cannot make an IRA contribution. However, note that this is not the case with W-2 income, so if your business was under a S Corp you could have used your W-2 income for an IRA contribution.
Permalink Submitted by David Mitchell on Mon, 2021-04-19 18:45
So here is my follow up. I agree on the S-Corp and W2. But, the schedule C shows a profit and SE Tax is paid on that profit. It is only then it is passed through to the personal 1040 the NOL carryforward is eliminating and making it not taxable on the personal side. Can you re-review with knowing the Schedule C shows a profit, the NOL is a carryforward from 2019 not a 2020 loss on the schedule C, SE TAx was paid on the 2020 line 31 profit. Does that change the circumstances to make more like an S-Corp. Sorry to questions this, you are always correct. I just think maybe I worded the question poorly.
Permalink Submitted by Alan - IRA critic on Mon, 2021-04-19 23:16
Not always correct, and you may be right, but citations are hard to find. If paying SE tax, that might indicate that a CO loss would just be a deduction and not treated as reducing current year SE income. Need time to check further and post back. Also, the CARES Act added more options for NOLs per following:
How the CARES Act Affects Net Operating Losses (thomsonreuters.com)
Spousal contribution if possible could remove any doubt.