mwcpa
Senior Member
Joined: Jan 7, 2011 6:35:43 GMT -5
Posts: 2,425
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Post by mwcpa on Feb 17, 2012 18:14:41 GMT -5
From IRS.gov
"Credit amount If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income."
Assuming the entire 61,000 is from self employment, after deducting the SE tax deduction (meaning profit from SE is approx 65600), a full SEP will be $12,000 ish... that will reduce AGI to 48000ish...
that will bring down your income tax cost from 5500 to 3625....and you (assuming you are the only person with a pension contribution in 2011) get the savers credit too...
One need to weigh all of the facts and circumstances, not focus on on aspect of a tax break... if you can afford to set money aside for retirement and you get some of it funded with lower taxes and a tax credit then it may be worth it... but if you cannot afford to set aside the money, then clearly it would not be...
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mwcpa
Senior Member
Joined: Jan 7, 2011 6:35:43 GMT -5
Posts: 2,425
|
Post by mwcpa on Feb 18, 2012 7:09:55 GMT -5
remember, spending money just for a tax break when you cannot afford it is really a bad move.... I cannot count the times I get a call from a client who wants to buy or pay for XYZ so they can save some taxes.... when I ask if they need XYZ (or can they afford XYZ) they often say no, they just want to save tax....
spend 1000, save 250 in tax.... still out of pocket 750.... but they saved tax....
always look at tax as part of the financial picture, not the only factor (to the dismay of many who believe that "tax" is the only motivating factor for business decisions, read some of the opinions on P&M, makes me laugh, I just cannot reply there anymore since facts are often not welcome, unless they have a slant to bash Obama or bash one of the Republican candidates).
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