J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

41.4 Deductible Keogh or SEP Contributions

The deductible limit for a Keogh plan depends on whether you have a defined-contribution plan (profit-sharing or money-purchase pension plan) or a defined-benefit plan. A SEP is treated as a profit-sharing plan subject to the defined-contribution plan deduction limits explained below.

If you have a defined-benefit plan, you generally may deduct contributions needed to produce the accrued benefits provided for by the plan, including any unfunded current liability. This is a complicated calculation requiring actuarial computations that call for the services of a pension expert.

Deductible contribution to a defined-contribution Keogh Plan or a SEP.

Before figuring the deductible contribution you can make for 2012 to a profit-sharing Keogh or SEP account, or to a money-purchase pension plan, you must first figure your self-employment tax liability on Schedule SE and the employer equivalent portion of self-employment tax to be claimed on Line 27 of Form 1040. In computing your deductible plan contribution, your net profit from Line 31 of Schedule C, Line 3 of Schedule C-EZ, or Line 36 of Schedule F is reduced by the deduction for the employer equivalent portion of self-employment tax; see the Example below.

As a self-employed person, you are not allowed to figure the deductible contribution for yourself by applying the contribution rate stated in your plan. The rate must be reduced, as required by law, to reflect the reduction of net earnings ...