The personal holding company tax is often thought to be a remnant of days long gone but it can still come back to haunt business owners. This additional tax can be assessed against a closely held company if it receives excess investment income. However, with some careful tax planning, you may be able to avoid any dire tax consequences.
A Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) has traditionally been the most popular retirement plan for the self-employed and small business owner. A SEP IRA is a pure profit sharing plan that allows the employer to make up to a 25% (20% in the case of a sole proprietorship of single member LLC) profit sharing contribution to all eligible employees up to a maximum of $53,000 for 2015 and 2016. While a SEP IRA does offer high annual contribution limitations, there is another retirement plan that offers better retirement options for the self-employed or small business with no employees – the Solo 401(k) plan, also know as the individual 401(k) or self-employed 401(k) plan.
Cash balance plans offer owner-employees in professional practices a vehicle to defer tax on income well in excess of the annual contribution limits of traditional Sec. 401(k) and profit sharing plans. This option has become increasingly valuable since the total tax burden on owners of unincorporated, flow-through business entities increased in 2013.