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Still time to save on taxes with self-employed retirement accounts

October 8, 2008

Are you one of the 10 million taxpayers who didn’t send in a Form 1040 (or 1040A or 1040EZ) back in April?

If you got an extension to file back in the spring, you’ve got a week — until Wednesday, Oct. 15 — to get your paperwork to the IRS.

Golden_nest_egg_bank_2
And if you’re a self-employed filing procrastinator, you have a week to add to your nest egg and reduce your final tax bill.

Self-employed folks can still make tax-deductible contributions to Simplified Employee Pension, usually referred to as a SEP or SEP-IRA, or a Keogh plans.

The deadline for these retirement plan
deposits is your regular tax return due date plus any extensions.

Still time to set one up: Don’t have a SEP? No worries.

You can set up A SEP plan as late as the due date, including
extensions, of your business income tax return for the year you want to
establish the plan. For sole proprietors, your business income tax return is your 1040, including your Schedule C or C-EZ.

So as long as you establish a SEP and get the money into it by the deadline, you can use that contribution to help reduce your taxable income simply by simply deducting the amount on your 1040. Less taxable income generally means a smaller tax bill.

For the 2007 tax year, the maximum deductible contribution is the lesser of 25 percent of
your compensation or $45,000. For your planning purposes, the amount goes to $46,000 for
the 2008 tax year.

Careful of Keoghs: If you have a Keogh, however, be careful.

You can deduct 2007 Keogh contributions on your extended filing only if the plan was in place by Dec. 31, 2007.

If you opened this type of self-employed retirement plan earlier this year or are just now establishing it, you’ll have to deduct any money you put into it on your 2008 return.

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
  • Wow! This is a really clever move. It’s very fortunate that people can make tax-advantaged contributions on a day when stocks have gotten so cheap (October is often a good month for stock market disasters).

  • I am a SEP IRA employee, currently contributing 20% annually.Liking the higher contribution limit that allows me to catch up.

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