Business owners can establish SEPs for major tax savings
If you work for yourself and have not yet set up a tax-favored retirement plan for yourself, you can establish a simplified employee pension (SEP). (Flower Mound Business Tax Reduction: Your 2020 Bill Can Still Be Cut Down)
Unlike other types of retirement plans, a SEP can be made this year and still create a deduction on last year’s return. In fact, if you are self-employed and extend your 2020 Form 1040 to October 15, 2021, you’ll have until then to establish a SEP and make a deductible contribution for last year. The deductible pay-in can be up to 20% of your 2020 self-employment income. Or, it can be up to 25% of your 2020 salary if you work for your own corporation. The absolute maximum amount you can contribute for the 2020 tax year is $57,000.
So, we can be talking major tax savings here. However, you might not want a SEP if your business has employees. This is because you might have to cover them and make contributions to their accounts. That could be too expensive. Bottom line: if you have employees, don’t start up a SEP without consulting a tax reduction expert.
Business owners can take advantage of COVID-19 tax relief
Several COVID-19 federal tax relief measures might be available to eligible individuals who own unincorporated businesses and S corporations.
These relief provisions can really improve your personal tax situation. For example, you can carry back a 2020 business net operating loss (NOL) for up to five years. This allows you to recover some or all of the personal federal income tax paid for the carryback year(s).
First, talk to your tax pro about available COVID-19 tax relief provisions that could be claimed on your 2020 Form 1040 with tax-saving results.
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