Overcontribution

You put more than you were allowed to put into your SEP this year. You thought you were going to earn like 300 grand and could contribute something like $24k or so into it.You had the money early in the year, so you wrote the SEP a check. That was it.

But then, as the year went on, business declined. A lot. So much so that, at the end of the year, you only had $180k in taxable earnings and had overcontributed to your SEP/IRA. The maximum contribution you were allowed to make in tax-deferred dollars was actually $15k, so you're $9k over the limit.

How? Why? What does this mean? Well, SEP contributions are tax-deferred, meaning that you'd normally have been taxed on the $24k, brought down to $15k that you put in this year as ordinary income...but when you put that dough in a SEP and leave it there 20 years, you only get taxed when you take it out. And at that time, you get taxed on it, usually, as if it's ordinary income, rather than as long-term investment gains.

Anyway, if you've overcontributed, you have to take out $9k so that you don't get taxed on the money twice; that is, the IRS will tax you on that $9k overage, and then again when you take it out. Painful enough to pay taxes just once.