Year-end has come and gone, and with the New Year, we have new tax laws. As a business owner, you may be looking ahead trying to figure out how to best navigate the complexities of these new laws, but don’t let your 2017 tax filing get lost in the shuffle.
Yes, there will be new opportunities as a result of the Tax Cuts and Jobs Act, but if you haven’t filed your taxes for 2017 and are still looking for a way to contribute to your retirement savings, as well as your employees’, it’s not too late to do a SEP for 2017.
If you’re a business owner who’s going to have to write a check to the IRS this year, you may want to consider a Simplified Employee Pension (SEP). If you don’t already have a qualified plan, you can still implement a SEP IRA and claim the tax deduction for the 2017 tax year. A business owner can establish and contribute to a SEP for the 2017 year as late as the due date (including extensions) of their business’ income tax return for that year.
For a business owner, the contributions they make on behalf of themselves and for each eligible employee are generally tax-deductible. The business can contribute up to 25% of pay, not to exceed $54,000 (for 2017) for each eligible employee, including the business owner themselves. In a SEP, you’re not locked into making contributions every year as there is flexibility. In fact, if a business funds a SEP for 2017 but wants to create a different type of qualified plan for the 2018 year, they could do so and potentially roll over the balance from the SEP into the new qualified plan.
Sole proprietors, partnerships, LLCs and corporations, including S corporations, can set up a SEP. The IRS provides the necessary documents to establish the plan (IRS Form 5305-SEP). You do not have to file any documents with the government; therefore, the cost to administer the plan is very low.
While discussing the SEP opportunity to help your business in 2017, this would be the perfect time to discuss and plan for 2018 as well. Before making any decisions regarding qualified plans, business owners should consult with their tax professionals to ensure that a SEP makes sense for their specific circumstances.
If you decide to contribute to a SEP for 2017, your insurance agent or financial advisor can help you set up the plan and recommend financial products to fund it with.