Cutting costs is rarely far from the minds of most small business owners, and finding creative but legitimate ways to save money – although often tough and sometimes virtually impossible – can be done with the right advice and support.
One cost-saving area of business management that is often overlooked, and yet so frequently recommended by trusted Coral Springs accountants, is retirement plans for employees. Although they are of course beneficial for employees, that goes without saying, few small business owners fully understand just how beneficial retirement plans can be for them, too.
Let’s take a closer look:
Tax-deductible employer contributions
When as an employer, you contribute to the SIMPLE IRA, 401(k), or SEP IRA retirement accounts of your employees, those contributions are usually tax-deductible for your business. Helping to reduce your taxable income, you’ll pay less in federal taxes, and by contributing to your own retirement account as well, you can lower your own current tax bill.
Personal tax deferral on growth
When you contribute as the owner of a small business to your personal retirement plan, you can defer investment growth taxes until you actually retire. Because the money in your retirement plan grows while being tax-deferred, you get to keep more of it, instead of it going to the IRS in taxes.
Tax credits for new retirement plans
If as a small business owner, you start a retirement plan, you could be eligible for tax credits of up to $50,000 to cover administrative and setup costs, every year for the first three years. You could even be eligible for a further $500 every year if automatic enrolment is included in your chosen plan.
Ultimately, the cost of launching a retirement plan, could be eliminated, or at the very least, greatly reduced.
Lower self-employment taxes
If you’re self-employed, contributing to a SEP IRA or Solo 401(k) can help you lower your federal income taxes, as well as the amount you would otherwise owe in self-employment tax; creating a double win.
The ability to attract and retain employees
Although this is an indirect money-saving tactic, offering your employees a retirement plan can help you reduce employee turnover. With the cost of replacing just one employee often reaching as high as 30% of their annual salary – when you factor in the loss of productivity, training and expenses associated with hiring – it’s easy to see why such a tax-saving incentive might prove doubly useful for small business owners. Making your business more appealing to potential candidates, retirement benefits can also help encourage your existing staff to stick around for longer.
Ultimately, as any experienced company offering accounting in Fort Lauderdale will tell you, offering a retirement plan is good for employees and even better for your business.
More than just a way for business owners to take care of their employees, retirement plans are a savvy tax strategy when set up appropriately. Hidden savings from tax credits and deductions can quickly mount up, and if you haven’t yet considered offering your employees retirement plans, perhaps now is the time?
