Small business owners, whether incorporated or not, have a number of retirement plan options available. If you are considering starting a retirement plan, you should first learn about the kinds of plans available to you. In this article, we’ll discuss two popular retirement plans used by small businesses and the benefits of each.

One of the most popular is the SEP or Simplified Employee Pension. You can contribute 25% of your compensation up to $45,000 for yourself. Of course, you must make a similar contribution for any employees you have. In other words: if you make a 25% contribution for yourself, you must make a 25% contribution for your employee(s) based on their salaries. The benefits:

You can still set up, make a contribution and get a tax deduction for 2007 as long as it’s done by your tax filing deadline. SEP plans have the least paperwork and reporting requirements of any plan, making it easy to set up and administer. You decide whether to make a contribution year-to-year giving you some flexibility in an economic slowdown.

Another popular plan – especially if you have employees – is the SIMPLE IRA or Savings Incentive Match Plan for Employees. The benefits:

A SIMPLE plans allows for payroll deductions by employees – $10,500 in 2007 with a catch-up provision for those over age 50. Employee contributions are matched, usually dollar for dollar of the first 3%. In other words…you are only providing a contribution for those who choose to participate. No annual filing requirements and most of the paperwork is handled by the bank or financial institution making the investments for you and your employee(s).

For more detailed information on retirement plans, including rules for setting them up, the IRS offers a free CD-ROM called “Individual Retirement Arrangement Resource Guide for Small Business Owners and Individuals”. You can order a copy at www.irs.gov/retirement (the fastest way to find it on the website is to type IRA Resource Guide for Small Business Owners in the search box). Also check out IRS Publication 560 – “Retirement Plans for Small Business”.

There are significant tax benefits to any retirement plan. They include the fact that contributions are tax deductible and contributions plus earnings grow without taxation until they are withdrawn. Of course, there are drawbacks as well. To name just two: plan assets are illiquid and there is a substantial penalty (10% plus tax) for early withdrawal.

In addition to helping your business, yourself and your employees, recent tax law changes have handed out more incentives to establish a retirement plan. They include:

Contribution limits that increase regularly allowing you and employees to set aside every larger amounts for retirement. Catch-up provisions that allow employees age 50 and over (including yourself) to side aside additional contributions. Tax credit for small employers that may enable you to claim a tax credit of 50% of the cost of setting up and administering a SEP or SIMPLE IRA plan. There is a maximum cap of $500 per year for each of the first 3 years of the plan. As exciting as this sounds, it’s very unlikely that you’d ever get to use it since these plans typically don’t involve a fee for set up and administration. Tax credit for certain low and moderate- income participants (including the self-employed). The amount of the credit is based on the contribution made and the credit rate. The maximum contribution eligible for the credit is $2,000. The credit rate can be as low as 10% or as high as 50% depending on adjusted gross income. Talk with your tax advisor for more information.
Take Away Wisdom

As a small business owner, there are lots of really good reasons to have a retirement plan. The type of plan you choose is based on your business and personal situation. You may want to talk with your tax advisor or give me a call and we can flesh-out which plan is appropriate for you. However, if you are looking for a tax deduction for 2007

As a small business owner, there are lots of really good reasons to have a retirement plan. The type of plan you choose is based on your business and personal situation. You may want to talk with your tax advisor or give me a call and we can flesh-out which plan is appropriate for you. However, if you are looking for a tax deduction for 2007 – your only option may be a SEP Plan.

Life in post retirement phase is never the same. After years of active, busy and disciplined working life style, what a person wants is a life of comfort and peace. A comprehensive retirement insurance planning insurance policy takes complete care of your financial needs during the post-retirement phase of life.

Benefits

Retirement insurance planning insurance comes with a number of benefits.  You get ample income during your post-retirement years and thus you don’t have to depend on anyone for your requirements.  The contrary, you can still provide financial back up to your kids and their families.

Some of the benefits of retirement insurance policy are as follows;

1. Tax benefits galore

Investing in retirement policy is the best way to avail of tax benefits.

According to government law in most of the countries, premiums paid for life insurance policies are exempted from tax deduction.
2. Protection to family

The main purpose of having a life insurance policy is to provide protection to your near and dear ones in case something happens to you. A comprehensive retirement planning insurance policy ensures that your spouses and children do not have to face economic constraints even during your absence.

3. Ample retirement income

Retirement insurance policy boosts your retirement income and thus gives you to live a life of luxury and comfort even when you are not earning.

4. Most reliable

Investing in retirement insurance policy is the most trusted and reliable form of investment.

It is hundred times better than falling prey to other market-driven investment plans. While value of money invested in share market may rise and fall depending upon the market trends, money invested in life insurance provides you stability as it always comes back to you without any loss.

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A tax deduction checklist is one of the most important items a small business, or home based business, can have. This will always allow you to review it, and refresh your memory as to what is tax deductible and what is not. There can definitely be some gray areas when taking business deductions, but if you are not sure, or if it will raise a red flag, then just don’t do it. It is not worth it. But I have compiled a tax deduction checklist I use, and it is one I put together with my tax accountant.
Automobiles: 2 ways to deduct this, either by miles, or by all of the receipts of your expenses. Personally, I recommend just using the mileage deduction. You will probably be able to deduct more money this way, and it is just plain easy. Write down the number of miles it takes you to go somewhere for business. Then add them up and multiply it by the dollar deduction for mileage. This number may change. Office: Anything used in the operation of your office, whether at an office, or in the home office, is tax deductible. Just keep receipts. Bank charges: Any amount of money you are charged through a bank, or through a credit card processing company, is deductible. Business Gifts: Be careful with this one. If it is truly a gift, then deduct it. But this can cause a red flag with auditors if the amounts of the gifts become very large. It looks as if you are just trying to not pay taxes. Health Insurance: Any amounts of premiums you pay for your self employment are deductible. This included medical, life, and dental. Charitable contributions: Any donations made to charities can be deducted. Professional Fees: If you have an accountant, which files your taxes, and charges you a fee, it is deductible. Same goes for lawyers and consultants. Depreciation: Check with your accountant on this one. Some things must depreciate over a certain number of years. And, it all comes down to how you label it. If I bill someone for a “Website Design”, they are suppose depreciate it. But, if I call it “website updates”, they can write off the entire amount. Kind of tricky, so be careful.

The above gives you a pretty quick and easy tax deduction checklist. Feel free to use this, and this will give you a general guideline on what to deduct. I would also consult a tax person if you have any questions.

If you have a family, you probably spend a lot of time planning for many things. You plan your vacation, your children’s education, your meals, your schedules, and many other things as well. You should also do some family tax planning. Here are a few tips.

Have a special folder in a filing cabinet where everyone can put their receipts. Saving receipts is key to documenting expenses for tax deductions. If you file your receipts immediately, you won’t be struggling to find them at tax time. Keep even the ones you think do not represent a tax deduction. When it comes to expense receipts, you can never have too many.

Stay current on the tax code. There are often changes in the tax code that effect how and when a family should make a purchase or plan an investment. Keep abreast of what is going on with the tax laws so you can receive every tax credit, deduction, and exemption for which your family is legitimately eligible.

Find out about the American Opportunity Tax Credit. This is a new tax credit that was developed for educational expenses. The credit’s maximum allowable amount was raised to $2500 for four years. This represents a change not only in the amount of tax credit you can receive, but its duration, as well.

Look into investing in educational Savings Accounts for your children’s schooling expenses. These accounts, formerly referred to as Educational IRAs, are a very tax friendly way to save for a child’s educational future. While the deposits are not pretax, the earnings are tax-free. You can deposit up to $2000 annually per child to the age of eighteen years.

If your family’s health care costs add up to 7.5% of your AGI, you can deduct them on your income tax return. This could be helpful if you have a family member suffering from illness or have welcomed a newborn this year.

If you own a business and you have minor children, you might want to consider hiring them to work for you. Your business can pay them up to $5000 a year without being subject to income tax.

In this day and age, we all need to get a leg up on our financial situation. One of the best ways to do this is to see to it that you reduce your family’s tax liability as much as is legitimately possible through these tax savings and any others you can find.