|
Tax Tips for Small Business
RETIREMENT PLANS
FOR SMALL BUSINESSES
Profit Sharing Keogh
The most flexible
plan. It lets you decide each year how much to contribute. You can even
forgo contributions if you decide to skip a year. The maximum annual
deductible contribution per participant is for:
(a) Employees: $25,500 or 15% of compensation, whichever is less.
(b) Self-employed: $25,500 or 13.0435% of net income, which ever is
less.
Employees can generally
participate if they are (1) at least 21 years old; and (2) have completed
one year of service.
Vesting is accomplished
over a period of years and the plan must be set up before the end of
the employer's tax year but contributions don't have to be made until
the tax return due date, including extensions.
Money Purchase Keogh
This type of plan
give you the potential of larger deduction than a profit sharing Keogh.
The price that you must pay to get the potential of a larger deduction
is that you are required to make the contribution each year.
For example, 10% of compensation or earned income without regard to
profits. The
maximum annual deductible contribution per participant is for:
(a) Employees: $30,000 or 25% of compensation, whichever is less.
(b) Self-employed: $30,00 or 20% of net income, which ever is less.
Employees
can generally participate if they are (1) at least 21 years old; and
(2) have completed one year of service.
Vesting is accomplished
over a period of years and the plan must be set up before the end of
the employer's tax year but contributions don't have to be made until
the tax return due date, including extensions.
SEP (Simplified Employee Pension Plan)
These plans are hybrids
between Keogh Plans and IRA's. Although originally designed as an easy
to administer retirement plan for small businesses, you can also open
a SEP if you have self-employment income.
The maximum annual deductible contribution per participant is for:
(a) Employees: $25,500 or 15% of compensation, whichever is less.
(b) Self-employed: $25,500 or 13.0435% of net income, which ever is
less.
Contributions must be
made for all employees who: (12) are at least 21 years old; (2) have
performed services for the employer during three of the immediately
preceding five years and (3) are paid at least a minimum amount of annual
compensation (approximately $400).
The SEP can be set up
and funded any time before the employer's tax return due date, including
extensions.
SIMPLE (Savings Incentive Match PLan for Employees)
SIMPLE retirement plans first introduced in 1997 can be used by employers
with no more than 100 employees and self-employed individuals. The maximum
annual deductible contribution for a SIMPLE is $6,000 and in addition,
employers contribute 3% of compensation, up to $6,000.
Contributions must be made for all employees who have earned more than
$5,000 in any two prior years and who will earn at least $5,000 in the
current year.
The plan must be opened by October 1st of the year for which the contribution
is made. Contribution can be made at any time before the employer's
tax return due date, including extensions.
This material is being reprinted, with permission, from the TaxTalk
Newsletter.
|
