A SEP-IRA does allow you to contribute more towards your retirement than a "normal" IRA. You can contribute up to 20% of your adjusted net income (from the business) or $52,000 whichever is less.
It is a good option...to say whether it is "best" would require more information.
As a self-employed individual, the "best" option for maximizing deductions really depends on your overall income from the business, as well as your involvement in any other businesses.
A SEP-IRA lets you contribute 20% of your net earnings (it's technically 25%, but the contribution itself reduces your earnings for tax purposes, so the "net" computation is 20%) up to a maximum of $52,000 (in 2014). The paperwork is pretty simple and easy.
Your next alternative would be an individual 401(k) plan. An individual 401(k) lets you contribute up to $17,500 (or 100% of your earnings, if you don't earn $17,500) as an "employee" contribution, PLUS 20% of your net earnings as an "employer" contribution. The total of BOTH is capped at $52,000. If you're over the age of 50, you can make a "catch-up" employee contribution of another $5,500, bringing the employee component up to $23,000 and the combined total up to $57,500. The individual 401(k) has some additional paperwork to set up, and if/when the account balance exceeds $250,000 down the road, there will be an additional reporting form to file (called a Form 5500-EZ).
In general, you'll find that with the combination of contributions, you can put more into an individual 401(k) plan than a SEP-IRA, though it's a moot point once you're contributing up to the maximum $52,000 annual limit (unless you're over age 50, where the individual 401(k) annual limit moves up to $57,500). HOWEVER, the "employee" portion of an individual 401(k) is a limit across ALL 401(k) plans, so if you work elsewhere and participate in that plan as well, you can only make the "employer" contribution, which makes it equivalent to a SEP-IRA (and you may as well just do a SEP).
Bear in mind as well that if you have employees, additional rules apply for contributions to them, which may change what is the most appealing option. Assuming from the information you provided here that you have no employees of your own.
I hope that helps a little!
If you are a “one” person company (spouse OK as an employee), we offer through Fidelity or T. Rowe Price a “Solo” or "Self-Employed" 401(k) that allows you to place up to $52,000 annually (if you make $175,000 net profit) into your 401(k)(& deduct the $52,000)($35,600 if you make $100M net profit, and can deduct the $35,600). You can add and deduct an additional $5,500 if you are age 50 or more. Fidelity and T. Rowe Price do not charge a set up fee, nor an annual fee. Individual securities can be purchased. If you have other employees, each needs to work 1,000 hours or less for you for your retirement plan to work as desired (you don’t cover the employees!). These are special IRS cleared plans that combine a normal 401(k) with a “profit sharing” plan but are set up to act/administer as a normal 401(k). I filmed a short video on this, on my web page. All numbers are for 2014; they change each year as IRS rules change.
Everyone has given you great advice.
Both a SEP IRA and self-employed 401k are options you might consider as a sole proprietor with no employees. The self-employed 401k will give you a little more room to contribute for any given earnings you have, but a SEP IRA does not have the administrative burden of a 5500 filing of a 401k. If you are looking for a low cost, less paperwork, and highly flexible retirement plan, a SEP IRA may be a pretty good option in your situation. Also, if you filed an extension for your tax filings, you can establish a SEP IRA before you file and contribute to the plan for the last tax year. This will potentially save you some on tax liability for the prior year.