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ACTUAL AGREEMENTS

Department of Treasure
Internal Revenue Service

Release of Levy

(David & Nancy)

<-----I can do this for you too!

Under the provisions of Internal Revenue Code section 6343, all wages, salary and other income now owed to or becoming payable to the taxpayer(s) names above are released from the levy.

Offer in Compromise

(James)

<---------Put your name right here!

We have accepted your offer in compromise signed and dated by you on (DATE). The date of acceptance is the date of this letter.

Pay When Able

(Martin)

<------------If you're retired on SS,
you probably won't ever pay!

We have noted your account that you're currently unable to pay your total balance or to make installment payments. You may make payments as you are able.

Installment Agreement

(Ian)

<----------------Well within his budget!

We've accepted your offer for an Installment Agreement. The agreement covers the tax period(s) shown above. Please make your first payment of $50.00.

Innocent Spouse

(Martin)

<---------------Innocent spouse, over
$25,000 taxes forgiven!

You are also entitled to equitable relief of liability under Section 6015(f) of the Internal Revenue Code of the tax that was not paid with the filed tax return(s).

Decreased Lien

(Robert)

<--------Saved him over $200,000!

...updated the amount of the Notice of Federal Tax Lien, from $215,881.92 to the decreased amount...of $11,491.93.
Tax Relief Services


Several different types of retirement plan - 401(k), defined benefit, profit-sharing - can be made to suit a prosperous small business or professional practice. But if yours is a really small business - home-based, a start-up, a sideline - maybe you should consider adopting a SIMPLE plan.

SIMPLE is a type of retirement plan specifically designed for small business. SIMPLE is the somewhat strained acronym for "Savings Incentive Match Plans for Employees." As you guessed, they thought of the SIMPLE acronym first, and built the official name later.

SIMPLEs are intended to encourage small business employers to offer retirement coverage to their employees, and some have done so. But SIMPLE features work well for self-employed persons without employees. Here's what can be good for you about them - and what's not so good.

SIMPLEs contemplate contributions in two steps: first by the employee out of salary, and then by the employer, as a "matching" contribution (which can be less than the employee contribution). Where SIMPLEs are used by self-employed persons without employees - as IRS expressly allows - the self-employed person is contributing both as employee and employer, with both contributions made from self-employment earnings. (One form of SIMPLE allows employer contributions without employee contributions. The ceiling on contributions in this case makes this SIMPLE option unattractive for self-employeds without employees.)

Note:If you establish a SIMPLE 401(k) Plan, you:

  • Must have 100 or fewer employers.
  • Cannot have any other retirement plans.
  • Need to annually file a Form 5500.

A Quick list of pros and cons:

  • Plan is not subject to the discrimination rules that everyday 401(k) plans are.
  • Employees are fully vested in all contributions.
  • Straightforward benefit formula allows for easy administration.
  • Optional participant loans and hardship withdrawals add flexibility for employees.
  • No other retirement plans can be maintained.
  • Withdrawal and loan flexibility adds administrative burden for the employer.

How Much You Can Put in and Deduct

Those with relatively modest earnings will find that a SIMPLE lets them contribute (invest) and deduct more than other plans. With a SIMPLE, you can put in and deduct some or all of your self-employed business earnings. The limit on this "elective deferral" is $11,500 in 2009 and 10,500 in 2008. This limit is expected to be adjusted for inflation in future years.

If your earnings exceed that limit, you could make a modest further deductible contribution--specifically, your matching contribution as employer. Your employer contribution would be 3% of your self-employment earnings, up to a maximum of the elective deferral limit for the year. So employee and employer contributions for 2009 can't total more than $23,000 ($11,500 maximum employee elective deferral, plus a maximum $11,500 for the employer contribution.)

Catch up. Owner-employees age 50 or over can make a further deductible "catch up" contribution as employee. This is $2,500 in 2008 and 2009.

Example: An owner-employee age 50 or over in 2009 with self-employment earnings of $40,000 could contribute and deduct $11,500 as employee plus a further $2,500 employee catch up contribution, plus $1,200 (3% of $40,000) employer match, or a total of $15,200.

Low-income owner-employees in SIMPLEs may also be allowed a tax credit up to $1,000.

SIMPLE is good for the home-based business and can be ideal for the moonlighter - the full-time employee, or the homemaker, with modest income from a sideline self-employment business. With living expenses covered by your day job (or your spouse's job), you could be free to put all your sideline earnings, up to the ceiling, into SIMPLE retirement investments.

Keogh plans could allow you to contribute more, often much more, than SIMPLEs. For example, if you are under 50 with $50,000 of self-employment earnings in 2009, you could contribute $11,500 as employee to your SIMPLE plus a further 3% of $50,000 as an employer contribution, for a total of $13,000. A Keogh 401(k) plan would allow a $25,500 contribution.

With $100,000 of earnings, it would be a total of $14,500 with a SIMPLE and $35,500 with a 401(k).

Withdrawal: Easy, but Taxable

There's no legal barrier to withdrawing amounts from your SIMPLE, whenever you please. There can be a tax cost, though: Besides regular income tax, the 10% penalty tax on early withdrawal (generally, withdrawal before age 59 1/2) rises to 25% on withdrawals in the first two years the SIMPLE is in existence.

A Simple Plan

SIMPLE really is simpler to set up and operate than most other plans. Contributions go into an IRA you set up. Those familiar with IRA rules - in investment options, spousal rights, creditors' rights - don't have a lot new to learn.

Requirements for reporting to the IRS and other agencies are negligible, at least for you the self-employed person. (Your SIMPLE plan's trustee or custodian--typically an investment institution--has reporting duties.)

And the process for figuring the deductible contribution is a bit simpler than with other plans.

What's Not So Good about SIMPLEs

We've seen that other plans can do better than SIMPLE once self-employment earnings become significant. Other not-so-good features:

Because investments are through an IRA, you're not in direct control. You must work through a financial or other institution acting as trustee or custodian, and will in practice have fewer investment options than if you were your own trustee, as you could be in a Keogh. (For many self employeds, this won't be a big issue.) In this respect, a SIMPLE is like the SEP-IRA.

Other plans for self-employed persons allow a deduction for one year (say 2009) if the contribution is made the following year (2010) before the prior year's (2009) return is due (April 2010 or later extensions). This rule applies with SIMPLEs, for the matching (3% of earnings) contribution you make as employer. But there's no IRS pronouncement on when the employee's portion of the SIMPLE is due where the only employee is the self-employed person. Those who want to delay contribution would argue that they have as long as it takes to compute self-employment earnings for 2009 (though not beyond the 2009 return due date, with extensions).

Tip: The sooner your money goes in the plan, the longer it's working for you tax-free. So delaying your contribution isn't the wisest financial move.

It won't work to set up the SIMPLE plan after a year ends and still get a deduction that year, as is allowed with SEPs. Generally, to make a SIMPLE plan effective for a year it must be set up by October 1 of that year. A later date is allowed where the business is started after October 1; here the SIMPLE must be set up as soon thereafter as administratively feasible.

There's this problem if the SIMPLE is for a sideline business and you're in a 401(k) in another business or as an employee: The total amount you can put into the SIMPLE and the 401(k) combined can't be more than $16,500 in 2009 ($15,500 in 2008)--$21,500 if catch up contributions are made to the 401(k) by one age 50 or over. So one under age 50 who puts $8,000 in her 401(k) can't put more than $8,500 in her SIMPLE, in 2009. The same limit applies if you have a SIMPLE while also contributing as an employee to a "403(b) annuity" (typically for government employees and teachers in public and private schools).

How to Get Started in a SIMPLE

You can set up a SIMPLE on your own by using IRS Form 5304-SIMPLE or 5305-SIMPLE, but most people turn to financial institutions. SIMPLES are offered by the same financial institutions that offer IRAs and Keogh master plans. Setting up a SIMPLE for your self-employed business is much like setting up a Keogh in a master plan. If anything, it's, um, simpler - simpler because you have fewer choices than with a Keogh.

You can expect the institution to give you a plan document (approved by IRS or with approval pending) and an adoption agreement. In the adoption agreement you will choose an "effective date" - the beginning date for payments out of salary or business earnings. That date can't be later than October 1 of the year you adopt the plan, except for a business formed after October 1.

Another key document is the Salary Reduction Agreement, which briefly describes how money goes into your SIMPLE. You need such an agreement even if you pay yourself business profits rather than salary.

Printed guidance on operating the SIMPLE may also be provided. You will also be establishing a SIMPLE IRA account for yourself as participant.

Keoghs, Seps and SIMPLES Compared For 2008

 

Keogh

SEP

SIMPLE

Plan type: Can be defined benefit or defined contribution (profit-sharing or money purchase)

Defined contribution only

Defined contribution only

Owner may have two or more plans of different types, including a SEP, currently or in the past

Owner may have SEP and Keoghs

Generally, SIMPLE is the only current plan

Plan must be in existence by the end of the year for which contributions are made

Plan can be set up later--if by the due date (with extensions) of the return for the year contributions are made

Plan generally must be in existence by October 1st of the year for which contributions are made

Dollar contribution ceiling (for 2009): $49,000 ($46,000 for 2008) for defined contribution plan; no specific ceiling for defined benefit plan

$49,000 ($46,000 for 2008)

$22,000

Percentage limit on contributions: 50% of earnings, for defined contribution plans(100% of earnings after contribution). Elective deferrals in 401(k) not subject to this limit. No percentage limit for defined benefit plan.

50% of earnings (100% of earnings after contribution). Elective deferrals in SEPs formed before 1997 not subject to this limit.

100% of earnings, up to $11,500 for 2009 ($10,500 for 2008) for contributions as employee; 3% of earnings,up to $11,500 for contributions as employer

Deduction ceiling: For defined contribution, lesser of $49,000 ($46,000 for 2008) or 20% of earnings (25% of earnings after contribution). 401(k) elective deferrals not subject to this limit. For defined benefit, net earnings.

Lesser of $49,000 ($46,000 for 2008) or 20% of earnings (25% of earnings after contribution). Elective deferrals in SEPs formed before 1997 not subject to this limit.

Same as percentage ceiling on SIMPLE contribution

Catch up contribution 50 or over: Up to $5,500 in 2009 and $5,000 for 2008 for 401(k)s

Same for SEPs formed before 1997

Half the limit for Keoghs, SEPs (up to $2,750 in 2009 and $2,500 for 2008)

Prior years' service can count in computing contribution

No

No

Investments: Wide investment opportunities. Owner may directly control investments.

Somewhat narrower range of investments. Less direct control of investments.

Same as SEP

Withdrawals: Some limits on withdrawal before retirement age

No withdrawal limits

No withdrawal limits

Permitted withdrawals before age 59 1/2 may still face 10% penalty

Same as Keogh rule

Same as Keogh rule except penalty is 25% in SIMPLE's first two years

Spouse's rights: Federal law grants spouse certain rights in owner's plan

No federal spousal rights

No federal spousal rights

Rollover allowed to another plan (Keogh or corporate), SEP or IRA, but not a SIMPLE.

Same as Keogh rule

Rollover after 2 years to another SIMPLE and to plans allowed under Keogh rule

Some reporting duties are imposed, depending on plan type and amount of plan assets

Few reporting duties

Negligible reporting duties

 



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