For a pair of high-powered lawyers, Mr. and Mrs. Obama seem a bit careless about their tax planning. We can draw a money-saving lesson for your 2007 1040 from the Obamas' 2006 1040.
Self-employed taxpayers can take advantage of "Keogh" retirement plans and SEP plans. Keogh plans are simply ordinary retirement plans for a single self-employed taxpayer. A "SEP," or Simplified Employee Pension, is basically a special kind of deductible individual retirement account for a self-employed taxpayer (UPDATE: this means earnings on the accounts accumulate tax-free until they are withdrawn for returement).
While Keogh plans have to be set up before year-end to be effective, you can set up and fund a SEP as late as the due date of your return. The only documentation required is a Form 5305-SEP for your records and a deposit to your SEP account with your friendly community banker or broker by April 15 - or October 15, if you extend your 1040.
For 2007, you can save as much as 25% of your self-employment income (on up to $180,000 in income) in a SEP, for a maximum contribution of $45,000.
Mr. Obama had self-employment income $506,618, mostly from his book. Mrs. Obama had $51,200 of what appear to be directors fees from "Treehouse Foods," which is also self-employment income. With this income, the Obamas could have contributed $54,103 to SEP plans for 2006, reducing their taxes by about $17,661.
So keep hope alive! If you have self-employment income for 2007, you can still have the audacity to open a 2007 SEP. By moving money from one pocket to another, you can still make a dent in your 2007 taxes.
This is another in our series of 2008 filing season tips.
UPDATE from the comments: It looks like the Obamas aren't exactly model savers, tax-deferred or otherwise.
UPDATE II: More From Greg Mankiw.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to