Calculate Your SEP IRA Contribution Limit

• 1). Add up your gross self-employment income, which includes all the payments you received as a freelancer or small-business owner.
  
  
• 2). Subtract your business expenses from this total. If you need guidance on this, see IRS Publication 535: Deducting Business Expenses.
  
  
• 3). From this total, subtract half of the self-employment taxes you owe the IRS. As of 2010, self-employment taxes are 15.3 percent of your self-employment income.
  
  
• 4). Multiply your total from Step 3 by 0.20. The resulting number is the maximum amount you may deduct for a SEP-IRA contribution--you may also deduct less, if you wish. You have until you file your taxes, including extensions, to make SEP IRA contributions and apply them to the previous year.
  
  

Reporting Your Deductions

• 1). Don't take a deduction for your 401k contribution--it was already subtracted from your W-2 income. The portion you agree to contribute to your employer's 401k plan is called an elective deferral, and technically the IRS considers it to be your employer's contribution. Therefore, you don't pay taxes.
  
  
• 2). Report your SEP IRA contribution on line 28 of your tax return, Form 1040. In due process, the form's instructions will direct you to subtract this amount from your taxable income.
  
  
• 3). Find out if you qualify for the Retirement Savings Contribution Credit. Depending on how much you make, you might be able to take another deduction because you saved money for retirement. As of 2010, you can write off a portion of your deduction if you are a single filer who made up to $27,750, and $55,500 if you filed jointly with your spouse.