As we start tax season 2023, small enterprise homeowners are probably on the lookout for methods to decrease their tax payments for 2022. Hopefully, you might be sitting on report income to your extremely profitable enterprise. Nevertheless, report income typically imply report taxes. Top-of-the-line methods to decrease final yr’s taxes is to totally fund a small enterprise retirement plan.

In case you are one in every of these small enterprise homeowners dealing with a big tax invoice, chances are you’ll wonder if you continue to have time to open a brand new retirement plan for your enterprise (or self-employment revenue) for 2022. The precise reply to your state of affairs will probably be, “it relies upon.” Hold studying to seek out out the perfect retirement plan to your small enterprise to assist decrease your 2022 taxes.

Tax planning affords wonderful alternatives for enterprise homeowners to enhance their after-tax profitability. A couple of retirement plans are particularly designed to assist small enterprise homeowners. Probably the most used are SEP-IRAs, solo 401(okay) plans, and money stability pension plans. Every has its professionals and cons.

What Is the Deadline to Open a SEP-IRA for 2022?

Typically, the SEP-IRA is the best small enterprise retirement plan to open. And sure, you possibly can nonetheless open and fund a SEP-IRA for 2022. You possibly can open a SEP-IRA plan as late as your tax-filing deadline, together with extensions.

Contributions to a SEP-IRA are restricted to 25% of your revenue or $61,000, whichever is smaller. Many enterprise homeowners can contribute extra to a solo 401(okay) than a SEP-IRA. Consider a SEP IRA is finest for these companies with out staff.

Associated: Will Your State Tax Your Retirement Earnings?

Institution Deadlines for the Solo 401(okay) Plan

There’s confusion round deadlines for establishing a brand new solo 401(okay) for the earlier yr. New guidelines below the SECURE Act embody permitting additional time for enterprise homeowners to arrange new non-IRA retirement plans, together with the solo 401(okay). Beforehand (below the prior guidelines), new solo 401(okay) plans needed to be established by December 31 of the tax yr. The excellent news is, going ahead; you possibly can arrange a solo 401(okay) up till the due date for the company tax returns, the identical deadline as for SEP-IRAs. However there are limits to contributions when opening a solo 401(okay) after the tax yr has ended. (So, it’s best to open it in the course of the tax yr when potential).

When opening a brand new solo 401(okay) after the tax yr ends, you’ll solely have the ability to make employer contributions – not worker elective deferrals. In response to the IRS, self-employed employees should make their deferral elections by 12/31/2022 (for the tax yr 2022).

With out 2022 elective deferrals, it will likely be tougher to get the utmost quantity allowed right into a solo 401(okay) for 2022. The utmost 2022 contribution for a brand new solo plan adopted in 2023 is $61,000. If the brand new 401(okay) plan had been established in 2022, the contribution restrict for homeowners who’re 50 or older would have been $67,500 if the $6,500 elective deferral catch-up contribution had been used.

Associated: Contribution Limits For 2023 Retirement Plans

Money Steadiness Plan Institution Deadline

For high-income enterprise homeowners, nice information about money stability plans was hidden within the SECURE Act. Just like the solo 401(okay), the deadline to determine a money stability plan has been prolonged to your tax-filing deadline, together with extensions. Not like the solo 401(okay), all contributions to a money stability plan are from the employer.

In plain English, you possibly can arrange and absolutely fund a money stability plan in 2023 for 2022. You possibly can probably decrease your taxable revenue by lots of of 1000’s of {dollars}. Relying in your company construction, listed here are your deadlines: S-Corp or Partnership, March 15 (September 15 on extension) and C-corp or Sole Prop, April 15 (October 15 on extension).

Maximizing the tax financial savings of a money stability plan and 401(okay) may scale back your taxable revenue by lots of of 1000’s of {dollars} per yr. This might add as much as over one million {dollars} in tax financial savings over the subsequent decade, relying in your revenue and state taxes.

Speak along with your tax-planning knowledgeable and monetary planner to see which small marketing strategy will finest go well with you for the tax yr 2022. From there, you may make the selection of which small enterprise retirement account will present essentially the most tax financial savings going ahead in 2023 and past.