For self-employed clients, I have been suggesting that they set up a Simplified Employee Pension Plan (SEP) to get the tax deferral benefit. The contributions to an employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation of $50,000 in 2012. The limit has moved up to $50,000 from $49,000 in 2011. Please note that the 25% is based on net profit, not gross revenue. After reducing the self-employment tax, the rate is 20%, not 25%.
See the IRS web site below for how to choose, setup, and participate in a SEP plan:
http://www.irs.gov/retirement/sponsor/article/0,,id=139828,00.html
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