What are the tax deductible investments for self employed or small biz owner in US?
Other than 401k, where should small business owners and freelancers or self employed invest for tax deductible investments?
SEP IRAs, and my favorite: back into the business. If it's a corporation, any ordinary business expenses are deducted "above the line" so there's no corporate or income tax on it. Then, when you sell the business, you see a capital gains tax instead of income tax! It's a fantastic way to invest pre-income tax and at a generally lower rate than if you were to take the cash out as income.
The plan you establish is dependent on the size of the business and number of employees. For those with no employees other than a spouse, the Self Employed 401k offers higher contribution limits than than the SEP IRA. For those with numerous employees it may be the SIMPLE IRA. However, the genesis of your question is what can you do beyond the typical employee plan. For one thing you can combine the 401k/employer IRA option with a defined benefit plan. The max contribution there will be the actuarial value of 200k per year. For more info on these plans you can read here.
http://landmarkwealth.hubpages.com/hub/ … an-Options
In addition, if you are trying to reduce the cost of what you would contribute per employee, you can also look at a non-qualified deferred comp plan. More info on that here
http://landmarkwealth.hubpages.com/hub/ … ness-Owner
Each plan and it's limits are generally tailored to your business profile. Factors such as age of the owners, demographics and tenure of employees all need to be evaluated to determine the best option for you. Of course most important is what your actual free cash flow is. Sometimes the cash flow does not exist to utilize all options. I would suggest a good financial planner, and possibly working together with a third party administrator to look at what is actuarially possible for supplemental plan designs if you have the cash flow.
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