Extended Filers Have Until October 15 to Establish SEP Plan
Remember that 2012 income tax return you just weren't ready to file on April 15th? Instead, you filed a request for extension of time to file, thinking you just needed "a little extra time" to pull it all together. Your timely filed extension request gave you an additional six months in which to file, so it was easy to put those forms aside for another day. Well, the day of reckoning is fast approaching. The extended deadline for filing your 2012 tax return is October 15, so if you want to avoid late-filing penalties, it's time to get busy.
Make the Delay Pay by Establishing a SEP Plan
In addition to having extra time to gather needed tax documents, filing an extended return can provide another benefit. It means you still have an opportunity to do some last-minute retirement planning. You can set up a Simplified Employee Pension as late as the due date (including extensions) of your business income tax return for the year you want to establish the plan. So, if you are a sole proprietor and need an additional tax break for 2012—or just want to start saving for retirement—and you have not yet filed your tax return, you have until October 15 to establish a plan and make a contribution for 2012.
One of the advantages of a SEP is the ease with which you can set it up. There are three straightforward steps:
- Execute a written agreement to provide benefits to all eligible employees. (Most employers can use the IRS model plan document, Form 5305-SEP, Simplified Employee Pension - Individual Retirement Accounts Contribution Agreement.
- Give your employees certain information about the agreement.
- Set up an IRA account for each employee.
In addition to simplicity, the contribution limit is another factor that can make a SEP a good choice for funding your retirement. For 2012, you can contribute up to $50,000. This is substantially more than what you could contribute to an IRA or a SIMPLE plan. Plus, you can claim a deduction from your taxes for all, or part, of your contribution—thereby providing both a short-term tax savings and long-term financial benefit.
See our article, "SEPs Are the Easiest Way to Provide Employees with Retirement Benefits" for provides additional information. Then, talk with your tax pro to determine whether setting up a SEP prior to filing your 2012 tax return makes sense for your financial situation.