Consultant with a SEP-IRA
A profitable sole-proprietor consultant funding a SEP-IRA. The centerpiece is the self-employed SEP contribution limit (20% of net earnings) and how that retirement deduction ripples into QBI.
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Taxpayer facts
Who this is and what their year looked like.
Nadia is single and runs a management-consulting practice in Seattle, Washington as a sole proprietor. She had a strong 2025 and wants to shelter income for retirement.
Her fees came in on two 1099-NECs plus some direct client work. She funded a SEP-IRA for the year and made estimated tax payments.
Source documents
The 3 documents you will prepare the return from: 1099-NEC (Nonemployee Compensation), 1099-NEC (Nonemployee Compensation), Business records — Nadia F. Rosenthal, consultant.
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Create a free account to open the taxpayer's facts and every source document. No card, nothing to cancel.
Objectives
What a correct return should capture.
- Report ALL consulting income on Schedule C: both 1099-NECs plus the direct fees that never hit a 1099; subtract the expenses for the net profit.
- Compute self-employment tax on Schedule SE and take the one-half SE-tax deduction.
- SEP-IRA: for a sole proprietor, the deductible contribution is 20% of (net profit less one-half of SE tax), up to the 2025 cap of $70,000. It's an above-the-line deduction on Schedule 1.
- QBI is reduced by BOTH the ½ SE-tax deduction and the SEP-IRA deduction (each attributable to the business) before applying 20%.
- The QBI deduction is then limited to 20% of taxable income before QBI.
- Check taxable income against the 2025 QBI threshold ($197,300 single) to see whether the W-2/UBIA wage limit applies.
- Apply the estimated payments to find the refund or balance due.
- Note that Washington has no state income tax (its capital-gains excise tax doesn't apply here).
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
Stuck? Work through it with Yehuda
A one-on-one, 30-minute tutoring session on this return with Yehuda Tenenbaum, EA. Bring the spot where you got stuck and we will work through it together: how the forms connect, why a figure lands where it does, and how to check your work. $250. This is education on the practice return, not advice on your own taxes.