If you are self-employed or a small business owner, you may be eligible to deduct contributions made to retirement plans such as SEP IRAs, SIMPLE IRAs, and other qualified plans.
SEP IRA Contributions
- You must be self-employed or an employer to contribute.
- Contributions are made by the employer only (including self-employed individuals acting as their own employer).
- For 2025, contributions cannot exceed the lesser of:
- 25% of the eligible compensation, or
- $70,000 per participant
Note: Contributions are based on net earnings from self-employment, which require adjustments for self-employment tax and the deduction itself. You can use IRS Publication 560 for worksheets and guidance.
SIMPLE IRA Contributions
- Available to small businesses with one hundred or fewer employees.
- Employees may make elective deferrals up to $16,000 in 2025.
- Employers must either:
- Match employee contributions up to 3% of compensation, or
- Make a 2% non-elective contribution for all eligible employees.
Qualified Plans (e.g., Solo 401(k), Profit-Sharing)
- Contribution limits vary by plan type.
- Solo 401(k) plans allow both employee deferrals and employer contributions, with combined limits similar to SEP IRAs.
- Contributions are deductible on Schedule C for sole proprietors.
Contributions to Employee Plans
- If you contribute to your employees’ SEP or SIMPLE IRAs, you may deduct those contributions as a business expense.
- Report the deduction on Schedule C under “Other Expenses” or “Pension and Profit-Sharing Plans”.