Are you self-employed? Did you know you have many of the same options to save for retirement on a tax-deferred basis as employees participating in company plans?
Here are highlights of a few of your retirement plan options.
Savings Incentive Match Plan for Employees (SIMPLE IRA Plan)
- You can put all your net earnings from self-employment in the plan: up to $11,500 (plus an additional $2,500 if you’re 50 or older) in salary reduction contributions and either a 2% fixed contribution or a 3% matching contribution.
- Establish the plan:
- Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – for Use With a Designated Financial Institution,
- Form 5304-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – Not for Use With a Designated Financial Institution, or
- an IRS-approved “prototype SIMPLE IRA plan” offered by many mutual funds, banks and other financial institutions, and by plan administration companies; and
- open a SIMPLE IRA through a bank or another financial institution.
- Set up a SIMPLE IRA plan at any time January 1 through October 1. If you became self-employed after October 1, you can set up a SIMPLE IRA plan for the year as soon as administratively feasible after your business starts.
Simplified Employee Pension (SEP)
Contribute as much as 25% of your net earnings from self-employment (not including contributions for yourself), up to $49,000.
- Establish the plan:
- Form 5305-SEP, Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement, or
- an IRS-approved “prototype SEP plan” offered by many mutual funds, banks and other financial institutions, and by plan administration companies; and
- open a SEP-IRA through a bank or other financial institution.
Set up the SEP plan for a year as late as the due date (including extensions) of your income tax return for that year.
- Make salary deferrals up to $16,500 (plus an additional $5,500 if you’re 50 or older) of your compensation from the business either on a pre-tax basis or as a designated Roth contribution.
- Contribute up to an additional 25% of your net earnings from self-employment (not including contributions for yourself), up to $49,000 including salary deferrals.
- Tailor the plan to allow you access to the money in the plan through loans and hardship distributions.
- A one-participant 401(k) plan is sometimes referred to as a “solo-401(k),” “individual 401(k)” or “uni-401(k).” It is generally the same as other 401(k) plans, but because there are no other employees, other than the spouse, that work for the business, it is exempt from discrimination testing.
Other Defined Contribution Plans
- Profit-sharing plan: allows you to decide how much to contribute on an annual basis, up to 25% of compensation (not including contributions for yourself) or $49,000.
- Money purchase plan: requires you to contribute a fixed percentage of your income every year, up to 25% of compensation (not including contributions for yourself), according to a formula stated in the plan.
Traditional pension plan with a stated annual benefit you will receive at retirement, usually based on salary and years of service.
Benefit may also be defined based on a cash balance formula in a hypothetical individual account (a cash balance plan).
Maximum annual benefit can be up to $195,000.
Contributions are calculated by an actuary based on the benefit you set and other factors (your age, expected returns on plan investments, etc.); no other annual contribution limit applies.
Retirement plans for self-employed people were formerly referred to as “Keogh plans” after the law that first allowed unincorporated businesses to sponsor retirement plans. Since the law no longer distinguishes between corporate and other plan sponsors, the term is seldom used.
Dollar figures are for 2011 and are subject to annual cost-of-living adjustments.
- Self Directed Brokerage Accounts (401k-plan-blog.com)
- SBO 401K for Partnership Businesses: Easy Method of Making Retirement Contributions (401k-plan-blog.com)
- 100% Contributions with Solo 401k (401k-plan-blog.com)
By Stacie Clifford Kitts, CPA
The IRS today issued a reminder for individuals, businesses and charitable organization that wish to provide assistance to the victims of Japan’s devastating 8.9 magnitude earthquake.
Its important to remember, if you make charitable contributions to qualified U.S. charities that provide assistance to foreign country’s, your contribution is tax deductible. Making contributions to an organization or individual that is not a qualified U.S. organization will not get you a tax deduction.
Many individuals, businesses and charitable organizations wish to provide assistance to the victims of Japan’s recent earthquake. Consult Disaster Relief Resources for Charities and Donors on IRS.gov to get information about how to provide assistance to victims through a charitable organization.
Contributions to domestic tax-exempt, charitable organizations that provide assistance to individuals in foreign lands qualify as tax-deductible contributions for federal income tax purposes, provided that the U.S. organization has control and discretion over the use of funds. Donors should ensure that they make contributions to qualified charities. Use the Search for Charities function on IRS.gov to see if the charity you intend to support is a qualified charity listed in Pub. 78. Certain organizations, such as churches or governmental organizations, may be qualified to accept charitable contributions, even though they are not listed in Pub. 78.
- Japanese earthquake relief: tax rules for international donation deductions (dontmesswithtaxes.typepad.com)
- Japan earthquake info (blogs.discovermagazine.com)
- Disaster Prevention and Relief (atheistethicist.blogspot.com)
- 2011 Sendai Earthquake: How To Help (thedailywh.at)
- 8.9 earthquake in Japan: Tsunami watch; preparedness reminder (westseattleblog.com)
- How Can I Help Japan? Donate To 2011 Tsunami-Earthquake Relief (nowpublic.com)
All though the IRS tax tip series is generally good, some tips are better than others. The following tip is one of the better ones.
Taxpayers with disabilities and parents of children with disabilities may qualify for a number of IRS tax credits and benefits. Listed below are seven tax credits and other benefits which are available if you or someone else listed on your federal tax return is disabled.
1. Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
2. Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.
3. Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
4. Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.
5. Medical Expenses If you itemize your deductions using Form 1040, Schedule A, you may be able to deduct medical expenses.See IRS Publication 502, Medical and Dental Expenses.
6. Earned Income Tax Credit EITC is available to disabled taxpayers as well as to the parents of a child with a disability.If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do — in fact — qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
7. Child or Dependent Care Credit Taxpayers who pay someone to care for their dependent or spouse so they can work or look for work may be entitled to claim this credit.There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.
For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities or Publication 907, Tax Highlights for Persons with Disabilities, available on the IRS website at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
- Publication 3966, Living and Working with Disabilities
- Publication 907, Tax Highlights for Persons with Disabilities
- Happy Valentines! A Gift of Tax Filing For Your Sweetheart (staciesmoretaxtips.wordpress.com)
- IRS Announces Earned Income Tax Credit Assistance (walletpop.com)
- YourNews: Volunteer Income Tax Assistance to observe tax credit awareness day (knoxnews.com)
- IRS opens doors Saturday to help EITC taxpayers (oregonlive.com)
By Stacie Clifford Kitts, CPA
The IRS has started their seasonal “Tax Tip” campaign. I do like these tips. They cover many of the general questions that taxpayers ask. In the interest of having a little fun, let’s pick apart Tax Tip 2011-01
- Start gathering your records – I agree. Waiting to the last minute can cost you deductions. Lost receipts or forgotten documents are the bane of tax preparation. Give yourself time to get it together before the filing deadline gets here.
- Be on the lookout for w-2 and 1099’s – well duh IRS, this kind of falls into item number 1 don’t ya think? If you are owed a 1099 or W2, these are delivered or mailed to you by January 31, 2011. So if it’s March and you don’t have your forms, better start making some calls because something is wrong.
- Use free file – This option is cool, but a bit deceiving. Free file is a great product to prepare your federal income return if your income is less than $58,001. Free file is sponsored by brand name – for profit- tax software companies. So keep in mind, you still pay for the use of the software when you prepare your state tax return (only the federal part is prepared for free).
- IRS e-file – Personally I like efiling. It is convenient, fast, accurate, and paperless. Besides, here’s a heads up, E-file is mandatory for some taxpayers. It’s a new age, time to get on the ball and accept modern technological advances.
- Consider other filing options – Yes there are other options – you could prepare your return yourself (not recommended). And, if you qualify, there are ways to get your return filed that don’t cost money. Consider checking out your local VITA program. The IRS Volunteer Income Tax Assistance Program (VITA) and the Tax Counseling for the Elderly (TCE) Programs offer free tax help for taxpayers who qualify.
- Consider direct deposit – I still get taxpayers who want to have their refund checks mailed to them. I can’t really get my head around this one. Generally, there isn’t a good reason to have a check mailed versus having your refund direct deposited.
- Visit the IRS website again and again – okay, lots of helpful information here. No reason not to. I say, do it.
- Remember to checkout IRS publication 17. Well, yes if you want to learn all about income tax by all means here is a publication that will help. Helpful stuff includes: a) What’s new for 2010, b) Reminder, c) When you should file a return, d) When to paper file vs. efile, c) Yada yada yada
- Review! Review! Review! – Well ya check for mistakes. But people really, if you’re not a tax expert, you really aren’t going to know if you blew it. Might I suggest you have a tax professional review your return before you file.
- Don’t panic! – Unless you want too of course – or waited until the last minute. When all else fails, the IRS says you can give them a call at 800-829-1040.
- Tax tip: It’s time to get started; here’s a few things you can do (seattletimes.nwsource.com)
- Some Tax Payers Will Need to File Their 1040 Later Rather Than Sooner This Coming Filing Season (staciesmoretaxtips.wordpress.com)
- Important 2011 tax filing deadlines: Jan. 14, mid-February, April 18, Oct. 17 (dontmesswithtaxes.typepad.com)
- IRS Delays Start of Filing Season for Some Taxpayers (businessweek.com)
IRS Presents:Ten Things Tax-Exempt Organizations Need to Know About the Oct. 15 Due Date (This is a how to on keeping your exempt status)
Stacie says: This tax tip is some particularly good information from the IRS for tax exempt organizations to help them keep their exempt status. The time period to fix your delinquent Form 990 filings for years 2007, 2008 or 2009 will expire on October 15. That’s just a few more days. You are encouraged to take advantage and keep your tax exempt status.
A crucial filing deadline of Oct. 15 is looming for many tax-exempt organizations that are required by law to file their Form 990 with the Internal Revenue Service or risk having their federal tax-exempt status revoked. Nonprofit organizations that are at risk can preserve their status by filing returns by Oct. 15, 2010, under a one-time relief program.
The Pension Protection Act of 2006 mandates that most tax-exempt organizations must file an annual return or submit an electronic notice, with the IRS and it also requires that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status.
Here are 10 facts to help nonprofit organizations maintain their tax-exempt status.
- Small nonprofit organizations at risk of losing their tax-exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by Oct. 15, 2010.
- Among the organizations that could lose their tax-exempt status are local sports associations and community support groups, volunteer fire and ambulance associations and their auxiliaries, social clubs, educational societies, veterans groups, church-affiliated groups, groups designed to assist those with special needs and a variety of others.
- A list of the organizations that were at-risk as of the end of July is posted at IRS.gov along with instructions on how to comply with the new law.
- Two types of relief are available for small exempt organizations — a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice and a voluntary compliance program for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.
- Small tax-exempt organizations with annual receipts of $25,000 or less can file an electronic notice Form 990-N also known as the e-Postcard. To file the e-Postcard go to the IRS website and supply the eight information items called for on the form.
- Under the voluntary compliance program, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by Oct. 15 and pay a compliance fee.
- The relief is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.
- Organizations that have not filed the required information return by the extended Oct. 15 due date will have their tax-exempt status revoked.
- If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status and any income received between the revocation date and renewed exemption may be taxable.
- Donors who contribute to at-risk organizations are protected until the final revocation list is published by the IRS.
Small Tax-Exempt Orgs Revised Deadline: English
Time Is Running Out – Three Deadlines: English
- October 15 Deadline Looming for Nonprofits at Risk of Losing Their Tax-Exempt Status (prweb.com)
- IRS seeking tax returns from small nonprofits (knoxnews.com)
- Thousands of Mass. Nonprofits Risk Losing Tax-Exempt Status (thenon-profittoolbox.com)
- Tax-Exempt Status: Help the IRS Help You (thenon-profittoolbox.com)
- As a small nonprofit — did you file your Form 990? (chicagonow.com)
- O’Donnell Non-Profit May Lose Tax-Exempt Status For Failing To File Proper Tax Forms (alan.com)
- Keeping Your Exempt Status (thenon-profittoolbox.com)
- Tax Exempt Interest and your 2006 Form 1009-INT (turbotax.intuit.com)