We are in the middle of the summer–hot days, barbecues, the beach and the American pastime of baseball. Like many young Americans growing up, my dream was to hit a grand slam in the bottom of the ninth to win the World Series. I am not sure if this is quite as good, but here is my tax grand slam for all of my readers.
As you are aware, much of tax reduction comes about by working hard and finding enough hidden deductions to score big. If we hit enough singles we can score some runs. However, the most exciting results come from that one big swing that clears the bases.
In the world of tax, that grand slam is your business retirement account. Not only can you take a really large immediate tax deduction, but for a lot of people, they do not have to come up with additional cash to do so and the deduction continues to get larger each year.
Let’s look at some basic ways to do this because time is running out–you are in the bottom of the ninth inning for 2015!
Before you start, there are some simple questions that you will need to ask yourself:
- How much money do I want to put away for myself?
- How much do I need to save in taxes?
- How many employees do I have?
- How long have all of the employees been with me?
- Do I want to provide a company match for contributions made?
- What kind of business entity do I have?
- Do I think that I may need to put away more in future years?
- Will my tax bracket be higher when I retire?
With these questions answered, you have a few basic choices:
- ROTH IRA
- Profit Sharing Plan
- Defined Benefit Plan
For most people, the above list is in the order of how much you can contribute each year ranging from a few thousand to $210,000. If you have employees, for some of the plans you will need to offer the same benefits that you are taking advantage of. However, in most cases, the employee cost is relatively small, tax-deductible, and if the employee leaves your company, you would be entitled to a portion of their plan that they did not work long enough to earn.
Some of the plans offer a lot of flexibility as to determining the amount you want to contribute each year which is very helpful for businesses that have incomes that rise and fall.
In any event, here is the important thing you want to know right now–most of these plans need to be established by October 1 so you have very little time left to get this done!
It is very difficult to determine the right plan for you so please contact us; we would happy to help you through the maze of confusion and complexity.