General Practice, Solo & Small Firm DivisionSolo Newsletter
Revamp Your Tax Bill
Now that last year’s tax bill is out of the way, it’s time to sit down with your tax preparer and plan how to maximize your deductions and minimize your taxes for this year.
By using a Simplified Employee Pension Plan (SEP), you can reduce your taxes and at the same time help yourself and your employees plan for retirement. To do so, a law firm owner would establish a SEP-IRA account for each eligible employee in the company. Anyone who has worked at least three of the last five years and has earned at least $400 (indexed annually) during the plan year, and is 21 or older, must be included in the plan.
A contribution of up to the lesser of 15 percent or $22,500 can be made into the plan. Generally, this contribution must represent an equal share of each employee’s compensation. The money contributed is tax deductible to the employer and has the potential to grow tax deferred within the SEP-IRA accounts until withdrawn. (Withdrawals made prior to age 591/2 may result in a 10 percent IRS penalty.) The program requires no government filings, and the contribution percentages can vary from year to year, so it’s very simple and flexible.
If you find yourself putting off setting up a SEP, remember: It can be opened after the business year end while providing a tax deduction for the prior year.
Source: The Equitable Life Assurance Society