One thing to note: I'm fairly certain you can only contribute funds to your SEP IRA that were made FROM your self employed work. Meaning any money from your merchant marine job doesn't qualify. Unless you do something like fund your side business with your extra money from your merchant marine job and pay yourself via that...but that's a big grey area and I'm not sure how legal that especially when it comes to using it for tax deferred accounts.
Correct me if I'm wrong, but even if one is being fradulent, it's more or less zero sum. Let's say you earn $17.5K with the day job. You could report $17.5K in earnings on schedule C, then take an above the line deduction of $ 17.5K for a solo 401K contribution. On your 1040, it would appear you made 17.5K
more, so you still end up paying taxes on that original 17.5K from the day job.
Essentially for any deduction for self employment retirement contributions, the money needs to originate independent of the day job.
edit: it's actually a loss because you would have to pay FICA taxes on the 17.5K... i think..