If you have self-employment income, then you can take a tax deduction for contributions you make to a SEP, SIMPLE, or Keogh retirement plan. You must open and contribute money to a SEP-IRA plan by the due date of your tax return, including extensions. If you request an automatic extension, you will have until October 16th, 2006, to fund your SEP retirement plan for 2005. However, SEP IRA accounts must be set up by April 17th, 2006, if you are thinking about making a contribution for 2005.
Your maximum contribution to a SEP-IRA is 20% of your self-employment income or $42,000, whichever is less. SIMPLE-IRA: maximum elective deferral up to $10,000 (or $12,000 if age 50 or older). Limits on retirement plan contributions.
You must have self-employment income. Self-employment income consists of net profits from a Schedule C or Schedule F, or guaranteed payments from a partnership. Additionally, you must set up and fund a qualified retirement plan, such as a SEP-IRA, SIMPLE-IRA, or Keogh-type pension plan. If you run an S-Corporation, your corporation will have to set up the SEP-IRA and deduct your contributions from your W-2 salary.
You must use the worksheets found in IRS Publication 560 for figuring your allowable tax deduction for SEP, SIMPLE, and other retirement plan contributions. The allowable deduction is then reported on your Form 1040 Line 28. S-Corporations report SEP contributions on Form 1120S.
"SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. You can deduct contributions you make to the plan for your employees. If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustees' fees if contributions to the plan do not cover them. Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan." (from IRS Publication 560)
The deduction for SEP, SIMPLE, and other retirement plans is found in Internal Revenue Code Section 62(a)(6) and Section 404.
More Information: Worksheets in Publication 560 (scroll to chapter 5, PDF, 26 pages) Retirement Plans for Small Business (Publication 560) Internal Revenue Code Section 404 (Legal Information Institute, Cornell Law School)
SEP/SIMPLE Retirement Plans
IRS Publication 560
Your maximum contribution to a SEP-IRA is 20% of your self-employment income or $42,000, whichever is less. SIMPLE-IRA: maximum elective deferral up to $10,000 (or $12,000 if age 50 or older). Limits on retirement plan contributions.
You must have self-employment income. Self-employment income consists of net profits from a Schedule C or Schedule F, or guaranteed payments from a partnership. Additionally, you must set up and fund a qualified retirement plan, such as a SEP-IRA, SIMPLE-IRA, or Keogh-type pension plan. If you run an S-Corporation, your corporation will have to set up the SEP-IRA and deduct your contributions from your W-2 salary.
You must use the worksheets found in IRS Publication 560 for figuring your allowable tax deduction for SEP, SIMPLE, and other retirement plan contributions. The allowable deduction is then reported on your Form 1040 Line 28. S-Corporations report SEP contributions on Form 1120S.
"SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. You can deduct contributions you make to the plan for your employees. If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustees' fees if contributions to the plan do not cover them. Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan." (from IRS Publication 560)
The deduction for SEP, SIMPLE, and other retirement plans is found in Internal Revenue Code Section 62(a)(6) and Section 404.
More Information: Worksheets in Publication 560 (scroll to chapter 5, PDF, 26 pages) Retirement Plans for Small Business (Publication 560) Internal Revenue Code Section 404 (Legal Information Institute, Cornell Law School)
SEP/SIMPLE Retirement Plans
IRS Publication 560
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