Can I Deduct My Retirement Contributions as a Sole Proprietor?

Yes — self-employed individuals can contribute to retirement accounts like a SEP-IRA, Solo 401(k), or SIMPLE IRA and deduct those contributions, which reduces both your income tax and your self-employment income. A SEP-IRA allows contributions of up to 25% of net self-employment income, up to $69,000 (2024). A Solo 401(k) has even higher limits — up to $69,000 total ($76,500 if age 50+), combining employee and employer contributions. These contributions are deducted as an above-the-line adjustment on your Form 1040. Contributing to a retirement plan is one of the most powerful tax reduction strategies for self-employed individuals.