Deduction Limits for SEP-IRA Contributions

Self-Employed Individuals:

The deduction limits for employees also apply to self-employed persons.

However, self-employed persons must perform a special computation to figure their maximum deduction for contributions made to their own SEP-IRA.

For employees, the most you can deduct is the lesser of:

  • Your contributions (including any excess contributions carryover) or
  • 25% of the employee's compensation not to exceed $50,000 per participant for tax year 2012.

Note: The compensation you may consider for SEP contributions is limited to $250,000 in 2012.

Where to Deduct SEP Contributions

Self-Employed Persons:

Contributions for yourself are deducted on:

  • Form 1040, line 28.

Employees:

Contributions made for employees are deducted on the business tax return:

  • Sole proprietorships use Schedule C
  • Partnerships use Form 1065
  • C corporations use Form 1120
  • S corporations use Form 1120S
  • LLCs use Form 1065 unless an election was made for the entity to be taxed as a corporation. In which case, Form 1120 or 1120S would be used.

Due Date for Making Deductible Contributions

You have until the due date of your return (including extensions) to set up a SEP plan and make deductible contributions.

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