You Make the Call - Oct. 1, 2026

Question: Maya is a sole proprietor with no employees and no other retirement plan. Her 2025 Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship), reports $120,000 of net profit. Maya timely filed Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, extending the due date of her 2025 Form 1040, U.S. Individual Income Tax Return, to Oct. 15, 2026. Maya has not yet established a retirement plan for the business. On Oct. 12, 2026, she establishes a simplified employee pension (SEP) plan by signing Form 5305-SEP, Simplified Employee Pension - Individual Retirement Accounts Contribution Agreement, opens a traditional SEP-IRA and contributes $15,000 for 2025. The $15,000 contribution is within Maya’s allowable SEP contribution and deduction limit. May Maya deduct the $15,000 SEP contribution on her 2025 return?

Answer: Yes. Maya may establish the SEP and deduct the $15,000 contribution on her 2025 return because she established and funded the SEP by Oct. 15, 2026, the extended due date of her 2025 return.

A simplified employee pension (SEP) may be established for a tax year as late as the due date of the employer’s income tax return for that year, including extensions. Under §404(h)(1)(B), a SEP contribution is treated as made for a tax year when it is made on account of that year no later than the time prescribed for filing the return, including extensions. Because Maya has a valid extension through Oct. 15, 2026, both her Oct. 12 adoption of the SEP and her $15,000 contribution are timely for 2025. The statutory framework for SEPs appears in §408(k).

Assuming Maya has no other wages subject to Social Security tax, her maximum deductible SEP contribution is $22,304: ($120,000 net profit - $8,478 deductible self-employment tax) × 20%. Her $15,000 contribution is below that limit.

As a sole proprietor, Maya reports the deduction for her own SEP contribution on Schedule 1 (Form 1040), Additional Income and Adjustments to Income, Line 16.

Practitioner note: The SEP deadline differs from the deadline for a regular contribution to a traditional or Roth IRA. For 2025, regular IRA contributions generally had to be made by April 15, 2026, without regard to an extension. The Oct. 15 extension can therefore preserve a 2025 SEP opportunity that no longer exists for a regular 2025 IRA contribution.