The $70,000 Deduction Most Business Owners Don’t Know They Qualify For
SEP-IRA & Solo 401(k) — What Your Business Structure Can Do For Your Tax Bill
The IRS is never going to call you and remind you about deductions you’re missing. That’s not their job. But it is ours — so let’s talk about one of the most powerful and most ignored tax strategies available to business owners today.
You Worked Hard. The IRS Worked Hard. One of You Should Keep More of the Money.
Every year, business owners across the country — people running LLCs, S-Corps, partnerships, solo operations — pay more taxes than they have to. Not because they did anything wrong. Not because they’re not smart. Simply because nobody told them about a retirement account that can legally cut their taxable income by up to $70,000 in a single year.
That account is either a SEP-IRA or a Solo 401(k). And if you run your own business, there is a very good chance you qualify for one of them right now.
💡 Here’s how it works: you contribute money into a retirement account today, you get a tax deduction today, and the money grows tax-deferred until retirement. The government eventually gets its share — just later. And on a smaller base, if you manage it well.
Think of it as the government saying: “We’ll give you a discount today if you promise to save for tomorrow.” And unlike most government offers — this one is actually good.
Two Accounts. One Simple Idea. Very Different Rules.
The SEP-IRA and Solo 401(k) are not interchangeable. They serve different business structures and have different rules about how much you can contribute and when. Getting the right one for your situation is the difference between a modest deduction and a very significant one.
SEP-IRA
Simple to set up. Minimal paperwork. Works for almost every business type. Contribute up to 25% of eligible compensation, capped at $70,000 for 2025.
Watch out: If you have W-2 employees, you must contribute the same percentage for them as you do for yourself.
Solo 401(k)
Built for solo business owners — just you, or you and your spouse. No other W-2 employees. Has TWO contribution buckets: one as employee (up to $23,500), one as employer (up to 25% of compensation). Combined max: $70,000 — or $77,500 if you’re 50+.
The win: At lower income levels, this often lets you contribute far more than a SEP-IRA.
Not sure which one is right for you? That comes down to your specific entity structure and income level. Take both options to your CPA and ask them to run the numbers side by side.
How This Works for Your Business Type
Your entity structure changes how the contribution limits are calculated. Here’s the quick version for each:
Sole Proprietor / Single-Member LLC
Your contribution is based on net self-employment income after a deduction for half of SE tax. This is a calculation — not just your gross revenue. Your accountant needs to run this correctly. Both accounts are available to you, and both can work well.
S-Corp Owner
Your contribution limit is based on the W-2 salary you pay yourself from the S-Corp — not the total income flowing through it. This means your salary choice actually matters a lot. Too low and you limit your retirement deduction. There’s a sweet spot, and your CPA should help you find it before year-end — not in April.
C-Corp Owner
Salary-based contributions, similar to S-Corps. The company deducts the employer contribution at the corporate level — before income even hits your personal return. A clean, tax-efficient way to pull value out of your corporation.
Partnership / Multi-Member LLC
Each partner sets up and funds their own retirement account individually, based on their share of partnership income. The business doesn’t do it for everyone — each person handles their own. Easy to miss. Easy to fix once you know.
Had a Bad Year? The Window Might Still Be Open.
This is the one most people get wrong.
When business is slow — deals fall through, properties sit empty, income is down — most people assume retirement contributions are off the table. They skip it. They pay full taxes on whatever they did earn. And they move on.
But here’s what they should know:
The SEP-IRA timing advantage
A SEP-IRA can be opened and funded all the way up to your tax filing deadline — including extensions.
That means if you filed an extension, that window might still be open right now — not just until April 15th.
For the Solo 401(k): the account must be established by December 31st of the tax year, but it can be funded as late as your filing deadline including extensions.
Even in a down year, a small contribution at a 32% or 37% marginal rate is real money back in your pocket. And the money inside your retirement account keeps compounding whether your business had a great year or not. Consistency — even in smaller amounts — builds the base that makes these accounts meaningful at retirement.
Thinking About Working With D2Tax? Here's What to Know.
We love taking on new clients. But we want to be honest with you about how we work — because we think transparency is more valuable than a sales pitch.
We are not a last-minute shop. We take the time to understand your full financial picture — all your entities, your income, your goals — before we touch anything. That process cannot be rushed.
If you reach out the week before April 15th asking us to file on time, the honest answer is almost certainly no. Not because we don’t want to help. Because our clients who submitted their documents months ago are already in our queue — and they deserve to be taken care of first. They planned ahead. That matters.
What we can do — and do very well — is take new clients 30 to 60 days after April 15th. You’ll file on extension (which is completely normal and not a red flag). We take our time. We review your full situation. We identify every deduction you’re entitled to — including retirement contributions if the window is still open. And we do it right.
Extension is not scary. Extension is strategy.
Ready to stop leaving money on the table?
Reach out now and get on our radar. The earlier you connect with us, the more options we have to help you.
Disclaimer: Everything in this article is general educational information. Contribution limits, eligibility rules, and tax strategy vary depending on your entity structure, income, and individual circumstances. Speak with a licensed tax professional or CPA who can review your specific situation before making any financial decisions. This is not tax advice.