By: Iron Bull Tax Pros
Hey, it’s still summer outside, so no one wants to think about income taxes, right? We’re sorry, but it’s time, especially for businesses that are on extension for filing their 2020 returns. S Corp and Partnership returns must be filed by September 15th (check your state for disaster extensions) and that’s just a few weeks away. And as for current year tax planning, the most widely used and popular business planning tools available are pre-tax savings plans, both for employers and employees. 401(k), profit sharing and defined benefit plans are all ways for business owners to avoid tax on income earned this year. Unlike IRAs, which can be started and funded up until next years’ filing deadline, these plans have paperwork and administration that must be done well before December 31st, even if funding can take place later. “You need to build the bucket before you can put the water in it.” So here is what those time lines look like. Although the Secure Act has offered many time extensions for custom 401(k) plans, custom plans cost more to create and have different funding rules. The majority of new plans have been safe harbor plans that allow employers protections against not funding employees properly and are generally less expensive to administer. The deadline for starting a new safe harbor 401(k) plan for the current year is still October 1st, and since new plans often take a month or more to establish, you would want to get started on that by September 1st, or even earlier. Business owners who wait and miss these deadlines simply lose options and so will pay more for the remaining options. Think of it as an early bird sale. Business owners who do not procrastinate have more options and better pricing. Yes, it’s summer and it’s hard to think about tax planning, but it’s time, if you don’t want to find yourself up against the deadlines without time to think. You know from experience, that is never a good position to be in.
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