Have you ever gotten to the end of the year and felt frustrated with the total tax you had to pay to the IRS?  As a fellow entrepreneur and business owner, believe me, I know this feeling all too well.  But what can you do?  You just owe what you owe, right?  But is there a way to reduce that burden and still keep more of the money you worked so hard for? 

There is.  One way to keep more of your money is to establish a retirement plan for your small business, and it’s easier that you might think.  Let’s talk about the possibilities!  There are four options to choose from:

  • SEP (Simplified Employee Pension Plan) IRA
  • SIMPLE (Savings Incentive Match Plan for Employers) IRA
  • SIMPLE 401(k)
  • Solo 401(k)

Each plan offers unique features and benefits to consider when deciding what might work best for you in your business.  You’ll want to consult with one of our Core Wealth investment professionals to work out the details, but here’s a quick and simple comparison to illustrate the potential savings:

Scenario 1)   Burt, our fictional friend, is married, owns his own business, and is doing pretty well.  After it’s all said and done for the year, he’s showing net self-employment income of $100,000.  Burt’s other sources of income brought in $73,000 for the year, so his adjusted gross income (AGI) for taxes is $173,000.  He and his wife file jointly, so their tax liability for the year is $35,325.  Burt is left with $139,675 for the year and hasn’t made any progress toward saving for retirement.

Scenario 2)    The facts are the same this time EXCEPT Burt decided to create a retirement plan for his business and contributed $20,000 to it during the year.  The contribution reduces Burt’s net self-employment income to $80,000.  He still received $73,000 from other sources of income, so his new AGI is $153,000.  Burt and his wife still filed jointly, and their new tax liability is $29,727, which is $5,598 less than if he hadn’t made those retirement contributions!

This is just a simple example and doesn’t take into consideration the potential savings in self-employment tax and savings from making contributions to employees’ accounts.

What could you do with an extra $6,000 in your business each year?  I can think of a lot of things, and I bet you can too!  Are you ready to start saving yourself from tax?  Are you ready to stop stressing about when or whether you’ll be able to retire?  The Core Group can help.  To get started, follow the link to our FREE retirement guide, or give us a call to schedule a complimentary consultation.  We’d love to draft up a plan to show you how much you can save! 

The Core Group’s Managing Partner, Christian Brim, CPA, is passionate about helping his clients create the future they want.  As one of the top accounting firms in Oklahoma City and Tulsa, the Core Group’s team of professionals are not just the best accountants in Oklahoma, but truly the best holistic financial and accounting services provider in the region – just ask their clients.