If you’re among the millions of self-employed individuals who requested an automatic filing extension from the IRS for your 2018 return, your day of reckoning is coming soon. The deadline for filing is October 15,2019. Time is also running out on a potential tax saving opportunity. Strategy: Make a tax-deductible contribution to a Simplified Employee Pension (SEP) or Keogh plan. The deadline for theses retirement plan contributions is your regular tax return due date plus any extensions. In other words, hard as it is to believe, as long as you get the money in before October 16, you can still reduce the amount of tax you owe for last year.
The maximum deductible contribution for a SEP or Keogh is the lesser of 25% of compensation or 20% of net self-employment income, subject to an overall contribution maximum of $55,000 for 2018. (The contribution maximum increases to $56,000 for 2019.) Note: You can deduct Keogh contributions for the year only if the plan was in place before January 1,2019.
Alternatively, if you qualify, you might contribute to a Savings Incentive Match Plan for Employees (SIMPLE). With a SIMPLE IRA plan, you can contribute up to $12,500 for the 2018 tax year. The maximum contribution is hiked to $15,500 if you were age 50 or over as of 12/31/18. (The figures increase to $13,000 and $16,000, respectively, for 2019.) For the 2018 tax year, the contribution deadline for a SIMPLE is also your tax return due date plus extensions-October 15,2019, if you extended your return. Tip: A SIMPLE must be established by October 1 of the year in which you are claiming deduction, and 2018 is way back in the rearview mirror. If you won’t be eligible because of this rule, stick with a SEP plan.
Small Business Strategies