Hi, Mark Kohler here with another tax and legal tip
I want to talk about this set the self-employed pension now
These are old school, and I generally do a whole video titled I screwed up and did a SEP
What do I do now but before I offend too many of you old schoolers out there?
There is a place for the set
But it's a very in place where we'll put the SEP strategy into your tax and legal plan other than that I've got better
Recommendations, so let's jump into it first
Let's talk about how the SEP works
so here you are now for those of you that have watched many of my videos and hopefully you have subscribed to my channel and
You're watching some of these videos
Off and on you'll know I'll put operations on one side assets on the other so is your building your set
For many of you that have a sole proprietorship now, maybe an S corp, but an LLC
Taxed as a sole proprietorship or just a plain old sole proprietorship
So I'm gonna put a little dashed circle here for sole prop
this is where most people use the SEP because they're kind of stuck with it you can take your profit and
Contribute up to 25% of your profit
into a set now a SEP is like a
Supercharged IRA it's better than the average IRA and American to can do so that's good
But I can do a SEP and I can do up to 25 percent or fifty four thousand dollars
So asthma max, that's my max, and this is where acept
how
Acceptance and that's great now. Here's how they can be helpful is that if you're in a given year, so let's say this is
right now
2016
You're looking for a tax deduction in 2016 and and you've got income there
And you've made a hundred thousand dollars in profit and so you want to put 25 thousand dollars in your step
You can contribute into your SEP 4 2016
This is the I screwed up and all I can do as a set plan that I referred to where you can put
$25,000 into your SEP and get a tax deduction for 2016. That's great, and you have up until September
15th to do it as long as you file an extension, so that's a really in fact
I should say that's if you're an S. Corp or and two member LLC, but if you're in a even
Filing as a Schedule C. You have until October 15, so you can put this
$25,000 way into the fall and still get a tax write-off in 2016
That's what's good about a 7 and that's about
Where that is so now let's talk about the problems of a sap and I'm gonna use a red pen for this
so let's say you've got a hundred and twenty five thousand of income twenty five thousand in expenses and
You've netted a hundred thousand, so easy kind of like our last example
You can put twenty-five percent of your hundred grand and you've got twenty five thousand now sitting over in your set well
That's that's great, but how much did that cost you to do that? That's a big deal?
You had to pay self-employment tax at fifteen point three percent so you spend fifteen thousand three hundred dollars
to get a
$25,000 write-off
Okay, could we do better than that yes? We can now let me show you a better way
This is where we compare this set in a sole proprietorship to a 401k in an S. Corporation
Now some of you may be anti corporation because you think there are a lot of work or expensive in the state you live in
But wait till you see the numbers. Let's go back to red and blue here for a minute
Let's compare apples to apples
Set to 401k with the same amount of income so I bring in a hundred twenty five thousand I bring in
125,000 into my S corporation I spend twenty five thousand on its Pence's to spend $25,000 expenses over here
nothing special and I net
$100 all right so now
Holding all things equal
Where are we where do we go with this well if I'm over here in the set remember from the last clip. I'm gonna put
25% into my SEP that's great which is
$25,000
But it cost me fifteen thousand three hundred dollars in taxes to do it now
What's cool about a 401k is we do the salary dividend split. I call it the salary dividend some you
Accountants hard quarters you're gonna say
it's called a k1 its net income I get it but for the average person that makes sense to call it a
Salary dividend split because I take your profit and I change it
into two pieces I turn it into a w-2 and a k1
Kind of call it that dividend piece, and I do a 30 percent split, so I'll put
$30,000 on a w-2 and seventy thousand on your k1 very common. We've been doing it for years
We've never had a client audited in 15 years doing a third allocation or different
I've got my get a color payroll matrix
You can watch it on some other YouTube videos so we know what we're doing here bonafide CPAs
If your accountants telling you you can't take a salary that low call me. We'll work it out so use CPAs out there
I've got info for you, but in this example. I gotta give you the disclaimer
I'm gonna take a salary of around 30, and it passed through dividend of 70. I still make a hundred grand, but I call
Part of its salary and part of it k1 now the beauty of this is if I do a 401 K
So we'll come over here use our blue. We're gonna put money in our 401 K. I
Can put up to?
$18,000 in it Plus 25%
Of my salary and you may go Walmart 25% of 30s kind of crappy that's only
$7,000 you're putting in 25 5
7,500 I'm not I'm gonna you're only putting in 25 5 that's that's kind of a crazy thing
sorry 25 5 I
Would like to put in more well with the S Corp we can do more based on
Fluctuating your salary or the more money you make the more I can put in but look at this I put in the same amount
25,000 approximately in my 401 K
or
25,000 on my set but here's the kicker I am only there's a new color here
I am only paying FICA of
15% on the payroll, I just paid
4500 in payroll rather than
15,000 and payroll
So guys I saved over
$10,000
by using an S corp
401k
Rather than a set inside a sole proprietorship and guess what I ended up with the same
$25,000 in my retirement account. It's either in a 401 K. 25 grand
25 grand my 401 K or
I've got
25 grand in my SEP, but it cost me
$10,000 less to do it, so let's finish this up with our timeline. Let's say you're in 2017
you're wanting to deduction for 2016 you can still create a SEP and put your
$25,000 in your SAP and get a tax deduction for 2016, but now that you've watched this video. You've learned
You don't want to get stuck with that again in 2017 so what you do is you form an S corporation in 2017?
Create your 401 K. We charge like 1,200 bucks for a self directed 401k that you control. No stockbrokers
You're in control that 401 K checkbook start-to-finish
401 K you put in your
25,000 this year now you get a tax deduction in 2017 which you can still deposit in 20 if you have two people
You still get the write-off retro actively as long as the 401k is set up before the end of the year 1231
But you set up the 401k and now you're saving money in 2017 making the deposit in 2018 if you want to next year
But look it you can take the old SEP and roll it into your 401k
Tax-free so at the end of the day you have 50 grand sitting in a self-directed 401k that you control and you save
$10,000 in taxes doing it all one final point for some of you that say mark
I can't afford twenty five thousand dollars or more in a 401k right now
But I do want to put away more than five thousand an IRA
so you're somewhere in the middle ten twelve fifteen thousand dollars the SEP could be a great fit for you still there's a
cross-section of you out there where you're seeing this benefit of a set and
Still controlling your self-employment tax cost then as you start to make more money
You implement the 401k drive down your salary you see what's happening? You're putting more money in retirement
Giving less money to the IRS
I call that a perfect fit so I love that now this is where a little bit of strategy with a qualified
Tax law firm accounting from law firm that work together. That's us
Half our hour together once or twice a year we can save you thousands be careful
Just going out on the web and click click click and trying to figure out you've watched this video now
You're the captain of your ship. You've seen a way here that you can smooth sailing
You know it's new path new course well
Let us your first mate implement it for you
affordably and simply so hopefully that'll be a good help for you as you talk to your own advisor and
Bring them up to speed or change advisors altogether we hope we can be there for you
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