Tax stuff
With the approach of the Thanksgiving holiday, the number of articles being written about ways to lower your tax liability will increase exponentially between now and the end of the year. I had clients come to see me this week on more than one occasion with questions about how to pay Uncle Sam and Governor Moonbeam as little as possible without running afoul of the tax laws.
One of the best ways to lower (actually to defer) tax liability is only available to those who are self-employed. It's called the Simplified Employee Pension (SEP). Let's take a look at the federal tax return for President and Mrs. Obama for the year 2011. You don't have to go through the whole thing. Just look at the first page and start with line 12. The entry of $441,639 is the net profit for President Obama's work as the author of books. Now drop down to line 28. That amount of $49,000 is the maximum allowable contribution to a SEP for the President from his net profits from self-employment. The simplest way to understand the limit on how much can be contributed to a SEP is that it is the lesser of 25% of the net profits or the annual limit which was $49,000 in 2011.
Traditional IRAs have stiffer restrictions. Maximum contribution in any year is $5,500 (when you turn 50, you can bump it up to $6,500). There are income limitations and other limits come into play when you have a retirement plan through an employer.
The 401(k) or similar plan through an employer is better, with the 2015 limit currently set at $18,000. But it still pales in comparison to what a self-employed person can put away for retirement.
Did some continuing education today and read something I found fascinating. Seems that millenials are, on average, doing more saving for retirement than the generation before them. Perhaps they learned from the lessons of the crash of 2008.
I wish I had a magic bullet that would make it easier to pay less in tax. Other than buying a home, there isn't any way to make a significant dent in that tax bill each year.
One of the best ways to lower (actually to defer) tax liability is only available to those who are self-employed. It's called the Simplified Employee Pension (SEP). Let's take a look at the federal tax return for President and Mrs. Obama for the year 2011. You don't have to go through the whole thing. Just look at the first page and start with line 12. The entry of $441,639 is the net profit for President Obama's work as the author of books. Now drop down to line 28. That amount of $49,000 is the maximum allowable contribution to a SEP for the President from his net profits from self-employment. The simplest way to understand the limit on how much can be contributed to a SEP is that it is the lesser of 25% of the net profits or the annual limit which was $49,000 in 2011.
Traditional IRAs have stiffer restrictions. Maximum contribution in any year is $5,500 (when you turn 50, you can bump it up to $6,500). There are income limitations and other limits come into play when you have a retirement plan through an employer.
The 401(k) or similar plan through an employer is better, with the 2015 limit currently set at $18,000. But it still pales in comparison to what a self-employed person can put away for retirement.
Did some continuing education today and read something I found fascinating. Seems that millenials are, on average, doing more saving for retirement than the generation before them. Perhaps they learned from the lessons of the crash of 2008.
I wish I had a magic bullet that would make it easier to pay less in tax. Other than buying a home, there isn't any way to make a significant dent in that tax bill each year.
posted by me at 3:37 PM
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