self employed

Self-Employed? Build A Nest Egg With A Solo 401(k) Plan

Do you own a successful small business with no employees and want to set up a retirement plan? Or do you want to upgrade from a SIMPLE IRA or Simplified Employee Pension (SEP) plan? Consider a solo 401(k) if you have healthy self-employment income and want to contribute substantial amounts to a retirement nest egg.

This strategy is geared toward self-employed individuals including sole proprietors, owners of single-member limited liability companies and other one-person businesses.

Go it alone

With a solo 401(k) plan, you can potentially make large annual deductible contributions to a retirement account.

For 2022, you can make an “elective deferral contribution” of up to $20,500 of your net self-employment (SE) income to a solo 401(k). The elective deferral contribution limit increases to $27,000 if you’ll be 50 or older as of December 31, 2022. The larger $27,000 figure includes an extra $6,500 catch-up contribution that’s allowed for these older owners.

On top of your elective deferral contribution, an additional contribution of up to 20% of your net SE income is permitted for solo 401(k)s. This is called an “employer contribution,” though there’s technically no employer when you’re self-employed. (The amount for employees is 25%.) […]

By |2022-08-24T18:42:47+00:00August 24th, 2022|401k|0 Comments

Deducting Self-Employed Medical Insurance for S Shareholders

According to the IRS, a 2-percent shareholder in an S corporation may be eligible for a deduction against Adjusted Gross income (AGI) for the cost of accident and health insurance premiums paid by the corporation. The deduction is equal to 100 percent of the amount paid for medical insurance for the shareholder, his or her spouse, and dependents and is reported as an adjustment to income on the shareholder’s Form 1040.

The deduction has two limitations:

  • The deduction is not available for the calendar months in which the 2-percent shareholder or spouse is eligible to participate in another employer-subsidized health insurance plan; and,
  • The deduction cannot exceed the taxpayer’s earned income derived from the trade or business that provides the health insurance plan. S corporation shareholders treat their social security wages from the S corporation as earning income for purposes of this limitation.

A 2-percent shareholder that meets the requirements is eligible for the deduction if the plan providing the medical care coverage is established by the S corporation, which means that:

  • The S corporation pays the premiums for the accident and health insurance policy covering the 2-percent shareholder (and his or her spouse and dependents, if applicable) in […]
By |2020-09-03T20:05:34+00:00January 14th, 2015|deduction, medical deduction, self employed|0 Comments
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