How to Correctly Deduct Self-Employed Retirement Plans

When you own your own business and you are a sole proprietor, you can set up a retirement plan for yourself and your employees if you have them.  Once you have set up a retirement plan, the contrbutions that you make for yourself are deductible on your tax return.  There are a few times of retirement plans that the IRS allows for sole proprietors, such as Simplified Employee Pension plans (SEPs) and Savings Incentive Match Plan for Employees Individual Retirement Account plans (SIMPLE IRA).  Which plan you choose is up to you and you should consult your tax or investment advisor for more information.  Generally these retirement plans are such that the current contributions are deductible and are not taxable to the employee until they are distributed.

If you have net profits from either a Schedule C or a Schedule F, then you may qualify for a deduction of your contributions to your retirment plan.  The deduction is the total cotributions to the plan.  You deduct this from your gross income on your tax return.  There are limits on this deduction.  There are also maximums that you are allow to contribute to self-employed retirement plans.  For more information about self-employed retirement plans you can see IRS Publication 560 or contact your tax professional.

 

Be Sociable, Share!