Question

SEP IRA Contributions

Forum|Forum|5 years ago
April 1, 2021
1 reply
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If I owe $15,000 in taxes, and I also contribute $15,000 to my SEP IRA, do I get a "dollar for dollar" value, meaning I would owe $0 in taxes?

E

ErnieS0

No. You do not get a "dollar for dollar" reduction in tax by contributing to a SEP IRA.

Your SEP IRA contribution is a deduction, meaning your tax savings equals your effective tax rate. For example, if your tax rate is 10%, you'll save 10 cents (10%) of tax for every dollar you contribute to a SEP IRA.

A SEP IRA only reduces income tax, not self-employment tax.

The best way to lower your tax liability is to find more deductions against your self-employment income. Additional deductions will lower the amount of net profit subject to income and self-employment tax.

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