Are you a high-income small-business owner who doesn’t currently have a tax-advantaged retirement plan set up for yourself? A Simplified Employee Pension (SEP) may be just what you need, and now may be a great time to establish one. A SEP has high contribution limits and is simple to set up. Best of all, there’s still time to establish a SEP for 2017 and make contributions to it that you can deduct on your 2017 income tax return.
2018 deadlines for 2017
A SEP can be set up as late as the due date (including extensions) of your income tax return for the tax year for which the SEP is to first apply. That means you can establish a SEP for 2017 in 2018 as long as you do it before your 2017 return filing deadline. You have until the same deadline to make 2017 contributions and still claim a potentially hefty deduction on your 2017 return.
Generally, other types of retirement plans would have to have been established by December 31, 2017, in order for 2017 contributions to be made (though many of these plans do allow 2017 contributions to be made in 2018).
High Contribution Limits
Contributions to SEPs are discretionary. You can decide how much to contribute each year. But be aware that, if your business has employees other than yourself: 1) Contributions must be made for all eligible employees using the same percentage of compensation as for yourself, and 2) employee accounts are immediately 100% vested. The contributions go into SEP-IRAs established for each eligible employee.
For 2017, the maximum contribution that can be made to a SEP-IRA is 25% of compensation (or 20% of self-employed income net of the self-employment tax deduction) of up to $270,000, subject to a contribution cap of $54,000. (The 2018 limits are $275,000 and $55,000, respectively.)
Simple to Set Up
A SEP is established by completing and signing the very simple Form 5305-SEP (“Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement”). Form 5305-SEP is not filed with the IRS, but it should be maintained as part of the business’s permanent tax records. A copy of Form 5305-SEP must be given to each employee covered by the SEP, along with a disclosure statement.
Additional rules and limits do apply to SEPs, but they’re generally much less onerous than those for other retirement plans. Contact us to learn more about SEPs and how they might reduce your tax bill for 2017 and beyond.
We help you plan, forecast and analyze your financial data
so you can get on top of your finances today to grow your
small business big tomorrow.
Tax Planning Tips for Small Businesses
4 Common Tax Bookkeeping Pitfalls to Avoid
Everything you Need to Know about your Business Financial Position
Larger Deduction Might Be Available To Businesses Providing Meals To Their Employees
IRS Audit Techniques Guides Provide Clues to What May Come Up If Your Business Is Audited
2018 Q1 tax calendar: Key deadlines for businesses and other employers
This Years Company Holiday Party is Probably Tax Deductible, But Next Years May Not Be
Tax Cuts and Jobs Act: Key Provisions Affecting Businesses
The TCJA Temporarily Expands Bonus Depreciation
Can You Deduct Business Travel When It's Combined with A Vacation?
New Tax Law Gives Pass-Through Businesses a Valuable Deduction
Your 2017 Tax Return May Be Your Last Chance to Take The "Manufacturers' Deduction"
Fun fact: This isn't the first time the tax season has been delayed.
2 Tax Credits Just for Small Businesses May Reduce Your 2017 And 2018 Tax Bills
Claiming Bonus Depreciation on Your 2017 Tax Return May Be Particularly Beneficial
Is Your Employer Withholding Enough in Taxes?
Tax Credit for Hiring from Certain "Target Groups" Can Provide Substantial Tax Savings
Sec. 179 Expensing Provides Small Businesses Tax Savings On 2017 Returns ‐ And More Savings in The Future
Don't Forget: 2017 Tax Filing Deadline for Pass-Through Entities Is March 15
Make Sure Repairs to Tangible Property Were Actually Repairs Before You Deduct the Cost
Defer Tax with A Section 1031 Exchange, But New Limits Apply This Year
2018 Q2 Tax Calendar: Key Deadlines for Businesses and Other Employers
Should You File Form SS-8 To Ask the IRS to Determine A Worker's Status?
A Net Operating Loss on Your 2017 Tax Return Isn't All Bad News
TCJA Changes to Employee Benefits Tax Breaks: 4 Negatives and A Positive
Tax Document Retention Guidelines for Small Businesses
A Review of Significant TCJA Provisions Affecting Small Businesses
The TCJA Changes Some Rules for Deducting Pass-Through Business Losses
What Businesses Need To Know About The Tax Treatment Of Bitcoin And Other Virtual Currencies
Do You Qualify For The Home Office Deduction?
Close-up On The New QBI Deduction's Wage Limit
2 Tax Law Changes That May Affect Your Business' 401(k) Plan