Accountants CPA Hartford: William Brighenti
Certfied Public Accountant, Certified Business Valuation Analyst
Certified QuickBooks ProAdvisor, Sage Master Builder Consultant
Save on Taxes with Simplified Employee Pension Plans (SEPs)

46 Mildrum Road, Berlin, CT 06037               Telephone: (860) 828-3269               Email:  info@cpa-connecticut.com

Are you a small business paying too much in taxes?  Consider setting up a Simplified Employee Pension Plan (SEP Plan).  With a SEP plan, you and your spouse, if employed in the business, generally can shelter as much as $98,000 in income every year from federal and state income taxes as well as social security and medicare taxes.  You do not need an expensive attorney to set up and administer a SEP plan.  All that is required is to compose a formal written agreement.  This written agreement requirement may be satisfied by simply filling out Form 5305-SEP found on the Internal Revenue Service website by the due date of the tax return for that year.  Banks, insurance companies, and other qualified financial institutions have approved prototype SEP agreements that you may use if you prefer not to use Form 5305-SEP.  And you do not even have to file this Form 5305-SEP or the written agreement with the Internal Revenue Service; just keep it on file in your company's records.  You just have to provide each eligible employee in the plan with the information listed in Form 5305-SEP and its instructions, or similar information from your prototype written agreement.  In addition, a SEP-IRA must be set up for each eligible employee with a bank, insurance company, or other qualified financial institution. Each individual SEP-IRA is owned and controlled by the employee. All that is required by you, the employer, is to send the employees' SEP contributions to the financial institution where the SEP-IRA is maintained by the end of the following month. It's that easy to establish and maintain a SEP plan.

For the year 2009, you, as the employer, may contribute the lesser of $49,000 or 25% of the employee's compensation to the SEP plan for each participant.  The employee may contribute as much as $6,000; however, the total contributions of both employer and employee cannot exceed the lesser of $49,000 or 25% of that employee's compensation.  But contributions are not required to be made every year, and the percentage is at your discretion as the employer.  Another attractive feature of the SEP plan is that employer's contributions (as opposed to employees' contributions) do not need to be funded until the tax return is required to be filed, including extensions.  For example, if your corporation has a December 31st year end, and your company filed an automatic six-month extension, you may defer the employer contribution until September 15th, allowing considerable more time to accumulate the necessary cash to fund the year's contribution.

This plan may be the retirement plan for your business, especially if you and your spouse operate the company as its sole employees, or with employees who do not have more than a couple of years of service with your company or are under twenty-one years of age.  In order for your contributions to be deductible from taxable income, it needs to be "nondiscriminatory":  that is, if you have employees who are twenty-one years of age or older, have worked for you in
at least three of the immediately preceding five taxable years, and have earned at least $550 in compensation in 2009, they, too, would have to receive a proportional percentage of contribution to their retirement account as you and your spouse received.

For more information on SEP plans, retirement plans, other tax and accounting information, please visit our website:  Accountants CPA Hartford:  William Brighenti, Certified Public Accountant.

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