As a business owner, you’ve spent the last 11 months of the year busting your butt trying to take your business to the next level. Or, perhaps you take after serial entrepreneur Jay-Z, “I’m not a business man, I’m a business, man!” Regardless of whether you’re a newly established company just getting off the ground or a stable well established business, sound year-end planning may be able to save you a substantial amount on your taxes. With the New Year fast approaching, it’s time to crack open your books and start your year-end planning because while the most wonderful time of the year is upon us, it’s back to reality with tax season soon following.
Making contributions to a retirement plan can help alleviate your current tax liability, while increasing your savings, but make sure to stay within the IRS provided limits. The 2016 retirement contribution limits are below. The following summarizes the various retirement plans available to small business owners as well as their respective 2015 retirement contribution limits.
|Plan Type||2015 Contribution Limits||2016 Contribution Limits|
|SEP IRA||$53,000 per participant as % of salary||$53,000 per participant % of salary|
|Solo 401(K)||$53,000 per participant % of salary||$53,000 per participant % of salary|
|Solo 401(K) Catch-Up Limit >50 years old||$6,000||$6,000|
|SIMPLE IRA Catch-Up Limit >50 years old||$3,000||$3,000|
|Defined Contribution Plans||$53,000||$53,000|
|Defined Benefit Plans||$210,000 annual benefit||$210,000 annual benefit|
As a small business owner, tax deferral and retirement savings are the building blocks of your financial plan. There’s always a major rush come December for individuals and businesses alike to get their finances in order; and this year is no different. There’s no better time to start than the present, so don’t miss out on saving today for a better tomorrow.
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Distributions from a qualified retirement plan are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% federal income tax penalty.