How Do I Get A Tax Code After Being Self-Employed Small Business Owners: Understand Different Solo 401(K) Deadlines

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Small Business Owners: Understand Different Solo 401(K) Deadlines

Financial matters are often the focus of business owners. For self-employed individuals, tax planning is an important process that can improve income and help business owners accelerate wealth creation. At the same time, business owners should also consider retirement planning and saving for their future. Fortunately, you can achieve both of these goals by setting up a Solo 401(k) retirement plan.

Solo 401(k)s are self-directed retirement plans that offer flexible investment choices and one of the highest contribution limits among qualified retirement plans – $53,000 for 2016, or $59,000 if you’re 50 or older. This allows participants to lower their taxable income by thousands of dollars each year.

Here are the deadlines:

Many people mistakenly think that the Solo 401(k) account must be set up and receive contributions before the end of each year. As a result, qualified entrepreneurs tend to delay creating a retirement plan and may miss out on tax benefits and retirement savings. There are different deadlines for setting up a Solo 401(k) and for making contributions — and self-employed professionals should be aware of these deadlines to plan ahead.

You must set up your Solo 401(k) at the end of each year

Small business owners have until the last day of the year to set up a Solo 401(k) plan that qualifies for annual contributions.

To qualify for a Solo 401(k) plan, you must be engaged in a self-employed business activity with the intent of making a profit. That business cannot have employees other than yourself and your spouse.

But you can make contributions the following year

Fortunately, Solo 401k contributions do not have to be made by December 31st to count for the tax year.

According to the tax code, Solo 401(k) plans can receive contributions until your business tax filing deadline. For sole proprietorships, partnerships or LLCs, the contribution deadline is April 15 of the following tax year. For corporations, March 15. Can even apply for an extension if needed.

What do you stand to gain?

By contributing to a Solo 401(k) plan, you can lower your taxable income by a significant amount. Funds can grow on a tax-deferred basis, meaning you don’t pay taxes on the wealth you accumulate until you make a withdrawal during retirement.

You can use the Solo 401(k) calculator to figure out the exact amount you can contribute this year.

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