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Simple Retirement Savings Options for Your Small Business

Are you thinking about setting up a retirement plan for yourself and your employees, but you’re worried about the financial commitment and administrative burdens involved in providing a traditional pension plan? Two options to consider are a “simplified employee pension” (SEP) or a “savings incentive match plan for employees” (SIMPLE).

SEPs are intended as an alternative to “qualified” retirement plans, particularly for small businesses. The relative ease of administration and the discretion that you, as the employer, are permitted in deciding whether or not to make annual contributions, are features that are appealing.

Uncomplicated Paperwork

If you don’t already have a qualified retirement plan, you can set up a SEP simply by using the IRS model SEP, Form 5305-SEP. By adopting and implementing this model SEP, which doesn’t have to be filed with the IRS, you’ll have satisfied the SEP requirements. This means that as the employer, you’ll get a current income tax deduction for contributions you make on behalf of your employees. Your employees won’t be taxed when the contributions are made but will be taxed later when distributions are made, usually at retirement. Depending on your needs, an individually-designed SEP — instead of the model SEP — may be appropriate for you.

When you set up a SEP for yourself and your employees, you’ll make deductible contributions to each employee’s IRA, called a SEP-IRA, which must be IRS-approved. The maximum amount of deductible contributions that you can make to an employee’s SEP-IRA, and that he or she can exclude from income, is the lesser of: 25% of compensation and $58,000 for 2021. The deduction for your contributions to employees’ SEP-IRAs isn’t limited by the deduction ceiling applicable to an individual’s own contribution to a regular IRA. Your employees control their individual IRAs and IRA investments, the earnings on which are tax-free.

There are other requirements you’ll have to meet to be eligible to set up a SEP. Essentially, all regular employees must elect to participate in the program, and contributions can’t discriminate in favor of the highly compensated employees. But these requirements are minor compared to the bookkeeping and other administrative burdens connected with traditional qualified pension and profit-sharing plans.

The detailed records that traditional plans must maintain to comply with the complex nondiscrimination regulations aren’t required for SEPs. And employers aren’t required to file annual reports with IRS, which, for a pension plan, could require the services of an actuary. The required recordkeeping can be done by a trustee of the SEP-IRAs — usually a bank or mutual fund.

SIMPLE Plans

Another option for a business with 100 or fewer employees is a “savings incentive match plan for employees” (SIMPLE). Under these plans, a “SIMPLE IRA” is established for each eligible employee, with the employer making matching contributions based on contributions elected by participating employees under a qualified salary reduction arrangement. The SIMPLE plan is also subject to much less stringent requirements than traditional qualified retirement plans. Or, an employer can adopt a “simple” 401(k) plan, with similar features to a SIMPLE plan, and automatic passage of the otherwise complex nondiscrimination test for 401(k) plans.

For 2021, SIMPLE deferrals are up to $13,500 plus an additional $3,000 catch-up contributions for employees age 50 and older.

Contact us for more information or to discuss any other aspect of your retirement planning.
© 2021


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Tax Advantages of Hiring your Child at your Small Business

As a business owner, you should be aware that you can save family income and payroll taxes by putting your child on the payroll.

Here are some considerations.

Shifting Business Earnings

You can turn some of your high-taxed income into tax-free or low-taxed income by shifting some business earnings to a child as wages for services performed. In order for your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child’s salary must be reasonable.

For example, suppose you’re a sole proprietor in the 37% tax bracket. You hire your 16-year-old son to help with office work full-time in the summer and part-time in the fall. He earns $10,000 during the year (and doesn’t have other earnings). You can save $3,700 (37% of $10,000) in income taxes at no tax cost to your son, who can use his $12,550 standard deduction for 2021 to shelter his earnings.

Family taxes are cut even if your son’s earnings exceed his standard deduction. That’s because the unsheltered earnings will be taxed to him beginning at a 10% rate, instead of being taxed at your higher rate.

Income Tax Withholding

Your business likely will have to withhold federal income taxes on your child’s wages. Usually, an employee can claim exempt status if he or she had no federal income tax liability for last year and expects to have none this year.

However, exemption from withholding can’t be claimed if: 1) the employee’s income exceeds $1,100 for 2021 (and includes more than $350 of unearned income), and 2) the employee can be claimed as a dependent on someone else’s return.

Keep in mind that your child probably will get a refund for part or all of the withheld tax when filing a return for the year.

Social Security Tax Savings

If your business isn’t incorporated, you can also save some Social Security tax by shifting some of your earnings to your child. That’s because services performed by a child under age 18 while employed by a parent isn’t considered employment for FICA tax purposes.

A similar but more liberal exemption applies for FUTA (unemployment) tax, which exempts earnings paid to a child under age 21 employed by a parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting only of his or her parents.

Note: There’s no FICA or FUTA exemption for employing a child if your business is incorporated or is a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work you’d pay someone else to do.

Retirement Benefits

Your business also may be able to provide your child with retirement savings, depending on your plan and how it defines qualifying employees. For example, if you have a SEP plan, a contribution can be made for the child up to 25% of his or her earnings (not to exceed $58,000 for 2021).

Contact us if you have any questions about these rules in your situation. Keep in mind that some of the rules about employing children may change from year to year and may require your income-shifting strategies to change too.
© 2021


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We Are Hiring!

Senior Accountant/Supervisor – Ag & Agribusiness Services

Acuity Advisors and CPAs LLP, Lancaster, PA, is a well-established, growing accounting and advisory services firm committed to a consultative, comprehensive, and holistic approach for each client. For more than 30 years, Acuity has been serving the region in accounting, tax, and consulting across a variety of industries. Acuity’s reputation as experts at each stage of a business’ lifecycle and in the agricultural and agri-business industry sets them apart. Our advice, planning and valuations are grounded in years of experience working with a wide range of ag and agri-businesses from producers and suppliers to feed mills and processors to packaging facilities and distributors. Our firm also focuses on the construction, manufacturing, non-profit, professional services, real estate services, and transportation industries. At Acuity, we help our clients see opportunity more clearly. Our top trusted advisors and talented CPAs are relationship driven.
Genuine. Loyal. Dedicated. Responsive. These are words that describe relationships not numbers. Numbers grow when there is a clear partnership with vision. A common focus. That’s Acuity. It’s a clarity that comes from collaboration and relationship with our clients and teammates. We care for each member of our team and work hard to ensure each team member is able to balance work and life outside of work.
Due to the continued growth of our firm, Acuity Advisors and CPAs is seeking a Senior Accountant / Supervisor to join our ag services division and have a direct impact on our firm by performing comprehensive client services, understanding client businesses, and discovering value opportunities at every turn. A strong relationship builder, the Senior Accountant / Supervisor will take initiative and be dependable, thorough, and accurate. A passion for all things agricultural, desire to grow within the firm and continue professional development is essential to the role. This position will afford the opportunity to utilize your accounting knowledge to assist in project completion in both tax reporting and financial reporting. The ability to oversee, develop, and train team members is a plus.

Position Qualifications:
• Bachelor’s degree in accounting / business management, required
• 2 – 4 years of experience in an accounting role, essential
• Current CPA licensure or the ability to obtain, a must
• Background in or passion for the agricultural industry, essential
• Proficiency with technology, required
• Demonstrated community involvement, a plus

Please provide cover letter and resume to our consultants: www.northgroupconsultants.com/jobs


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Tax Filing Deadline Extended

Federal

The Internal Revenue Service (IRS) announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended to May 17, 2021.

Pennsylvania

The PA Department of Revenue announced that the deadline for taxpayers to file their 2020 Pennsylvania personal income tax returns has been extended to May 17, 2021.

Estimated Income Tax Payments (Federal & PA)

As of March 19, 2021, the IRS and PA Department of Revenue had not granted an extension on estimated payments. The deadline remains April 15, 2021 for taxpayers who make estimated income tax payments.


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