| Can you believe it's almost tax time? In the blink of an | | | | the tax deferral benefits of the IRA except it is |
| eye, we are already looking at the initial deadline for | | | | exponentially more powerful. With a SEP, the |
| filing our 2009 income taxes. For those of you who | | | | employer can contribute up to $49,000, or 25% of the |
| have been proactive in terms of tax planning, this is | | | | employee's salary, on behalf of an employee per year. |
| when it all pays off. You have already been in touch | | | | Accordingly, the SEP plan is a great alternative to an |
| with your tax advisors and have gone through and | | | | IRA for a self-employed person or a small business |
| implemented all the appropriate action steps to | | | | owner. The best part of the SEP is that you have until |
| minimize your 2009 tax liability. For others who have | | | | the extended due date of the tax return to set-up and |
| not been proactive in planning ahead, now is the time | | | | fund the SEP and still be able to take a deduction for |
| to stop procrastinating. With April 15th knocking at the | | | | the 2009 year. Here is an example of how this works: |
| door, now is your last chance to take some time and | | | | Tyler, who owns a sign company, just realized that he |
| work on ways to minimize your tax bill for the 2009 | | | | is looking at paying a hefty tax bill to the IRS because |
| year. | | | | of all the money he made in his business in 2009. This |
| If you are reading this article, then consider this as your | | | | is the first time he is in the 35% tax bracket and he |
| first step in your last-minute tax saving strategy. Most | | | | really wants to decrease his tax bill. Tyler meets with |
| of you may be familiar with the fact that you can still | | | | his tax advisor and determines that he can set up a |
| make contributions to your Individual Retirement | | | | SEP plan in his business. Before Tyler files his 2009 |
| Account (IRA) now and take a deduction on your | | | | tax return on October 15, 2010, his sign business |
| 2009 tax return. For example, you can still contribute | | | | makes a contribution of $49,000 on his behalf into the |
| $5,000 to your IRA account and as long as you | | | | SEP. Tyler's business then takes a $49,000 |
| designate that to be 2009 contributions, you may be | | | | corresponding deduction and results in $17,150 of tax |
| able to save $1,250 in taxes on April 15th assuming | | | | savings for 2009. Here are the benefits that were |
| you are in the 25% tax bracket. The benefit of this | | | | achieved in this strategy: 1) Tyler was able to save |
| strategy is that in addition to saving $1,250 in taxes | | | | $17,150 immediately that would otherwise be lost to |
| (versus paying it to the IRS); you now also have an | | | | taxes, 2) Tyler was able to potentially decrease his |
| additional $5,000 in your retirement account that can | | | | overall taxes if the SEP contribution deduction lowered |
| invest tax free until distribution time in the future. | | | | him to another income tax bracket, and 3) Tyler now |
| Now let's take this concept to another level and talk | | | | has $49,000 in his SEP account that can invest in tax |
| about the SEP. The SEP, also known as Simplified | | | | efficient assets because he pays no taxes on income |
| Employee Pension plan, is what I like to refer to as an | | | | or gain from those investments until he withdraws |
| IRA on steroids. It has both the current tax savings and | | | | them at retirement. |