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

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.

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.

Comments

[sep ira employee]

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

[Taxrascal]

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).