If your company will be profitable this year, and you have some excess cash, you can save on taxes by setting up a 401(k) or Safe Harbor 401(k) for yourself and your employees. Even if you have a sole proprietorship,
you can still use a 401(k) to set aside money for your retirement and save on business taxes. In fact, the process is easier with no employees, because there are fewer rules.Tax Benefits of 401(k) plans:
- You can claim a tax credit for your business for the cost of setting up and administering the plan, up to $500 a year for each of the first three years the plan is in existence.
- The amounts you set aside from your business for yourself and employees are deductible as a business expense (up to specified limits)
- The individual employees receive this money tax-deferred, if they put it into a qualified plan; the money isn't taxable until it is taken out.
If you set up the plan before the end of this tax year, your potential savings could more than pay for the cost of setting up the plan and funding it.
