Minimize your Tax Obligations

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  • Minimizing Your Tax Obligations

  • 401(k)tax benefits

  • Contribution LimitsUnder 50 years of age$18,000

    Over 50 years of age$18,000Plus Catch up contribution up to $6,000

    Salary deferral plus employer contribution is limited to $53,000

  • Traditional Pre-Tax ContributionsContributions withheld from pay before tax

    Gains are tax deferred while in the plan

    Distributions taxed as ordinary income

    Up to $4,500 annual tax savings prior to age 50 and $6,000 for 50 or older*

    *Based upon a 25% tax rate

  • $20 Pre-tax ContributionCosts $15 in take home pay

  • Roth ContributionsContributions withheld from pay after tax

    Gains are tax deferred while in the plan

    Distributions are tax free after 59 and 5 years after initial Roth Contribution

    Roth in 401k avoids IRA income limitations

  • Pre-tax vs Roth

  • The Savers CreditMust have been born before 1/2/93Cannot be full time student or claimed as a dependent by someone else

    Income LimitsSingle - $27,750Head of Household - $41,625Joint Filers - $55,500

    Up to $1,000 credit, $2,000 if filing jointly

  • Contributions may be limitedFORAn active employee who owns at least 5% of the company during the plan year or preceding 12 months

    An active employee who receives compensation in excess of $120,000 (2015) in the 12 months prior to the plan year

  • Contributions may be limited

  • Increasing ContributionsEducation works long term commitment required

    Matching contributions have a direct impact

    Automatic Enrollment

  • Safe Harbor Plans

  • Safe Harbor PlansAvoid ADP/ACP testing requirement

    HCEs may contribute full 401k dollar amount ($18,000 in 2015)

    May satisfy top heavy minimum requirements

  • Safe Harbor PlansRequired employer contributions

    Matching contribution - $1 for $1 on the first 3% of pay and $0.50 for $1 on the next 2% of pay

    OR

    3% contribution to all employees who have met the plans eligibility requirement

  • Safe Harbor PlansAdditional requirement

    Safe Harbor contributions must be 100% vested

    Employees must receive a Safe Harbor notice 30 days before the beginning of the plan year

    Plan document must reflect Safe Harbor election

  • Safe Harbor Plans

  • Safe Harbor PlansIncrease Owner Contribution from $28,422.84 to $69,172.33

    $14,637.53 in employer contributions to non-owners

    Tax reduction of $14,899.11*

    *Source 2009 SBA study of average S-corp tax rates

  • Profit Sharing

  • Profit Sharing PlansPro-rata

    Integrated

    Age Weighted

    New Comparability/Cross Tested

  • Pro-rata Profit Sharing Plans

  • Integrated Profit Sharing Plans

  • Age Weighted Profit Sharing Plans

  • Cross Tested Profit Sharing Plans

  • Profit Sharing Plans Compared

  • Combining Strategies

  • Combining StrategiesIncrease Owner Contribution from $28,422.84 to $114,665.26

    $29,512.52 in employer contributions to non-owners

    Tax reduction of $31,138.08*

    *Source 2009 SBA study of average S-corp tax rates

  • The Bottom LineA 401(k) Plan is a valuable tax planning tool

    Tax benefits exist for all participants

    Business owners can make significant enhancement to their own accounts while benefiting employees and reducing their tax liability

    Careful analysis and a customized solution are needed since the dynamics of each business are different

  • Minimizing Your Tax Obligations