Last Minute Tax Savings Idea for Schedule C Income
As we approach the tax deadline of April 15th, many are anxiously awaiting to see the impact of the new tax laws this year. This is a time where gathering your tax documents and meeting with your accountant takes place to review your current tax outlook and come up with any last minute ideas to mitigate that dreaded tax bill if you have not planned appropriately. If you are self-employed, an independent contractor, or have some miscellaneous income in which you received a 1099, here’s an idea to put some money away for retirement and reduce your federal income tax.
A SEP, which is a Simplified Employee Pension, can be opened and accept tax deductible contributions up until April 15th, 2019 to take advantage of reducing federal income tax for the 2018 tax year. This is a retirement plan setup in that a SEP IRA acts like a Traditional IRA, but allows contributions up to 25% of net earnings up to a maximum $55,000. In certain situations where you or your spouse have an employer plan, tax deductible contributions to a Traditional IRA are restricted, so a SEP is a great way to not only reduce your tax bill, but also put savings away for retirement.
If a small business owner with employees wants to take advantage of this, it is wise to consult with a planner or tax professional before contributing. The IRS has eligibility requirements and in some cases the business owner cannot contribute to their SEP without making SEP contributions for their employees as well. If you have any questions or would like more information on SEP’s, feel free to contact us or visit www.IRS.gov/SEP