Week 46
What are you doing to save?
If you own your own business then this week is for you! If you don't then your assignment is to forward this week's e-mail onto your friends that own their own businesses. They will thank you that you did!!!
It certainly is a great day for a small business owner when his/her business crosses over from maintaining solvency to sustaining significant profits from one year to the next. Perhaps the days of worrying about going under and covering overhead are over. However, with the success of the business comes a new problem and this problem can be summed up in 3 letters: I.R.S. It may be the most fearful acronym known to man. Now the business owner, hopefully with the help of a good CPA, has to find ways to maximize tax savings while still staying in good standing with the IRS. However, where is he to turn after all business deductions have been figured in and he is still in a tax bind? Well there are a few things that will help with tax savings and also provide guaranteed retirement income for business owners. A business owner can use a section 79 plan or a profit sharing plan.
Section 79 plans are a great tax saving option for many small business owners. In basic terms, a Section 79 plan allows a business owner to max fund an indexed universal life policy for 5 years while allowing him to deduct up to 40% of the premium contribution. This also allows the business owner to pull income tax free in retirement. They qualify for this simply by paying for a small group term life policy for the employees, which are generally quite inexpensive. For example, for a 35 year old female business owner, contributing $25k for 5 years, would save approximately $4,000 per year in taxes. Her estimated cash value in the policy would be $540,000 at age 64, allowing her to pull about $79,000 annually in tax free income! She also has a safety net guarantee that she will be able to pull at least $37,500 annually in tax free income for the rest of her life! She also has about an $830,000 death benefit with the policy.
Another option is a profit sharing plan which is a great option for the business owner who needs a significant tax deduction and also needs to fund a retirement plan. It is also a great fit for the business owner who is paying him/her self out of the business. For example, if the business is paying a salary of $100k to the business owner, the business could write up to a 25k annuity with the business owner as the annuitant. This is a full deduction of 25k, which would save $6250 in taxes in a 25% tax bracket, or much more if it dropped the business into a lower tax bracket!
It certainly is a great day for a small business owner when his/her business crosses over from maintaining solvency to sustaining significant profits from one year to the next. Perhaps the days of worrying about going under and covering overhead are over. However, with the success of the business comes a new problem and this problem can be summed up in 3 letters: I.R.S. It may be the most fearful acronym known to man. Now the business owner, hopefully with the help of a good CPA, has to find ways to maximize tax savings while still staying in good standing with the IRS. However, where is he to turn after all business deductions have been figured in and he is still in a tax bind? Well there are a few things that will help with tax savings and also provide guaranteed retirement income for business owners. A business owner can use a section 79 plan or a profit sharing plan.
Section 79 plans are a great tax saving option for many small business owners. In basic terms, a Section 79 plan allows a business owner to max fund an indexed universal life policy for 5 years while allowing him to deduct up to 40% of the premium contribution. This also allows the business owner to pull income tax free in retirement. They qualify for this simply by paying for a small group term life policy for the employees, which are generally quite inexpensive. For example, for a 35 year old female business owner, contributing $25k for 5 years, would save approximately $4,000 per year in taxes. Her estimated cash value in the policy would be $540,000 at age 64, allowing her to pull about $79,000 annually in tax free income! She also has a safety net guarantee that she will be able to pull at least $37,500 annually in tax free income for the rest of her life! She also has about an $830,000 death benefit with the policy.
Another option is a profit sharing plan which is a great option for the business owner who needs a significant tax deduction and also needs to fund a retirement plan. It is also a great fit for the business owner who is paying him/her self out of the business. For example, if the business is paying a salary of $100k to the business owner, the business could write up to a 25k annuity with the business owner as the annuitant. This is a full deduction of 25k, which would save $6250 in taxes in a 25% tax bracket, or much more if it dropped the business into a lower tax bracket!
Homework:
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O - Contact us if you are a candidate for either a Section 79 or a profit sharing plan to get more details about how these could benefit you specifically.
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