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SELF-EMPLOYED? MAYBE A 'SEP' CAN PROVIDE LAST-MINUTE SAVINGS
April 12, 2006
A "Simplified Employee Plan," or SEP, is an old last-minute tax-saving favorite of Self-employed taxpayers. A SEP is an Individual Retirement Account for a Self-employed taxpayer and employees. You can set up and fund these as late as the due date of your tax return - even after April 17 if your return is properly extended. Taxpayers with SEPs can deduct contributions to their SEP-IRA of up to 25% of their self-employment income.
But be careful - you can't discriminate in a SEP, so any employees of your business also have to participate. If you have more than one business, you may have to cover employees of all of your businesses. If you are by yourself, though, SEPs are easy and can be set up just by executing IRS Form 5305-SEP. You can learn more about SEPs from IRS Publication 560.
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