First it is not in lieu of ... you are required by law to report all your income and expenses on your tax return. Then you can contribute to the Sep-IRA and it is not a flat 25% (that is for employees if you had any ... you are NOT an employee of yourself) ... there is a calculation to perform first to get the max contribution allowed and the program will help you with that amount.
If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. Compensation is your net earnings from self-employment, defined in chapter 1. This definition takes into account both the following items.
The deduction for the deductible part of your self-employment tax.
The deduction for contributions on your behalf to the plan.
The deduction for your own contributions and your net earnings depend on each other. For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5.https://www.irs.gov/publications/p560#en_US_2016_publink10008982