馃攳
The SEP IRA as a Last Minute Tax Strategy | Mark J Kohler | Tax Tip cpa sales tax llc - YouTube
Channel: Mark J Kohler
[0]
if you're watching this video then
you're looking for a last-minute tax
[3]
strategy for your tax return and I know
your pain! I myself am always
[7]
looking for the same and for our clients
around the country now I'm a CPA
[10]
attorney an author an owner of a trust
company i speaker around the country and
[15]
I help clients save taxes build their
wealth and protect it that's all we do
[20]
and I want to share with you what I
think is good and bad about this SEP
[24]
strategy and I want to explain it here
so let's dive into it and I think you're
[29]
gonna love it
[37]
all right first what is it what does
this Sepp stand for well it stands for
[42]
simplified employee pension and it's for
business owners so spoiler alert if you
[48]
don't have a side household a side gig
or a small business you're not gonna be
[51]
able to take advantage of this but if
you have income in any sort of small
[55]
business you can even be an uber driver
and have profit
[57]
you could set up a set if it makes sense
for you so think of it that way
[62]
it's a deduction much like a 401k or an
IRA off your tax return
[67]
it grows tax-deferred and then someday
it comes out and if you wait long enough
[72]
no penalty but you would pay tax when
you pull it out now you could convert it
[76]
to a Roth down the road now some of you
you're already like swim and go what
[80]
this is too much we'll hang with me hang
with me I want to make six points about
[84]
how you can utilize the SEP if you're a
small business owner and how it could be
[89]
a huge benefit to you on your tax return
and down the road building wealth first
[94]
point the 401k is better ninety percent
of the time if not more and here's why
[101]
because you can put away more money and
then a percentage of your profit or your
[106]
salary and minimize your FICA which is
your self-employment tax
[111]
Suda food if I K Social Security
Medicare you've heard of that well as a
[115]
small business owner you want to keep
that low and put as much as you can into
[118]
retirement and get it right off again
nine times out of ten the 401 K is going
[123]
to outperform the SEP now I know there's
some employee rules and all sorts of
[128]
little ways to compare that so I want to
encourage you down below I've got
[131]
another video that compares this SEP to
the 401 K so we're gonna dive into the
[136]
SEP but the first point is I'm gonna
really try to get you into a 401 K with
[141]
proper proactive planning but if you
didn't have a 401 K you can still take
[145]
advantage of the SEP and that's why
we're talking number two here's how it
[149]
works and it's best I use the whiteboard
to explain two ways you might use this
[154]
now for those of you they've watched
many of my videos I'd like to break
[157]
things down into operations and assets
and over here you might have an LLC with
[163]
some rental property or some investments
okay we cannot have a SEP or create one
[168]
or contribute to a SEP
out of a passive income investment can't
[174]
do it so I'm gonna put a set with a
little line through it there we go now
[178]
over here there's going to be two
scenarios where you might use a set for
[182]
those of you that are an LLC or a sole
proprietor there's a different rule than
[189]
if you are an S corporation now if
you're an LLC taxed as an S Corp then
[196]
you're an S Corp you're over here but
you've got to figure out where am I at
[199]
first now we're going to talk about
employees in a minute so hang tight but
[203]
when you contribute to a SEP over here
and let's say you're gonna have a
[207]
hundred thousand dollars of profit with
a sole proprietor or an LLC that's just
[212]
on a Schedule C charlie you can only put
away approximately 20% so you could take
[218]
a twenty thousand dollar write off and
dump it into a set over here on your
[223]
investment side you get a write-off for
twenty grand if you're in an S corp the
[229]
beauty is we're gonna pay and I should
point this out you're gonna pay FICA on
[234]
this entire hundred grand which is going
to be fifteen thousand dollars plus
[238]
which is ugly but in an S corp if you
make the same hundred grand I might do a
[245]
salary of 40 grand and a pass-through of
sixty and you can do 25 percent of 40
[252]
grand okay so 25 percent means I can put
ten thousand dollars in my set and
[260]
you're gonna go we'll mark this one's
better twenty is bigger than ten yeah
[265]
but also look at this on the FICA we
didn't spend fifteen thousand dollars we
[272]
only paid $6,000 in FICA in this example
and so this is where the Sepp gets
[277]
really tricky because to get these
bigger dollar amounts you've got to pay
[281]
a lot more in FICA over here we saved 12
grand but we only got ten thousand in
[287]
our SEP over here I paid 15,000 well
sorry we paid ten thousand dollars or
[293]
nine thousand dollars more in taxes to
get twenty thousand in deposits and you
[299]
can see well does that make sense I'd
rather you put less in your Sepp get a
[303]
write-off
the taxes so this would be 9 grand and
[307]
savings and then put that in a back door
Roth IRA so you can still get some Roth
[315]
contributions and subset contributions
that saved him taxes but if you're gonna
[320]
do a set and you were a escort for last
year
[323]
you haven't tell you filing this tax
return to decide how much you want to
[328]
put in the SEP and so this is why it's
kind of a last-minute strategy because
[333]
here let's use 2020 as an example I have
until September 15th
[339]
to decide if I want to do this and make
the deposit but I get the write-off back
[345]
in 2019 and it's the same rule here I
have until actually October 15th to
[352]
decide if I want to do a SEP now why in
one last point here - you can put up in
[357]
2020 up to fifty seven thousand dollars
into a set which is huge
[362]
but look at how much FICA you'd have to
pay to get there there's a law of
[366]
diminishing returns so I want to be
really targeted and efficient on how
[370]
much I want to put in the set so what's
why is this not look great it's because
[376]
you didn't do the 401k backed by
December 31st if I would have had time
[383]
with my client back in December I would
have said let's do a 401k where I can do
[388]
up to 19,000 plus 25% now I could do
29,000 in a 401k and still pay the same
[397]
little and FICA that is why the 401k is
freakin awesome because I can put so
[404]
much more away then a SEP and still save
on FICA that's the efficiency but again
[409]
I'm shooting this video as a last-minute
tax strategy where if you're filing your
[414]
taxes now in 2020 you didn't have a plan
back in nineteen let's still harvest a
[419]
good write-off
you're gonna be able to write off more
[421]
than a regular IRA and that's why small
business owners will jump now that was
[426]
the longest portion of this video how do
they work and some dollar amounts and of
[430]
course you can meet with your accountant
study up and I've got great articles in
[434]
my blog on this and longer videos in
might accent
[437]
library on my website the links below
okay now I want to have four more points
[442]
that'll go quick but they're really
really helpful the next point is called
[446]
the backdoor SEP IRA which kind of seems
weird well let me explain how this works
[451]
so back to our example of operations
versus assets sometimes I have clients
[458]
that have a w-2 over here and they've
got their day job and based on their
[463]
income level or if they're married they
may want to be classified as a real
[467]
estate professional because they have
rental properties and when they have
[472]
rental properties that got this LLC over
here and they might have flow-through
[475]
losses or if these LLC's are paid off to
a big degree you might be paying taxes
[482]
on some cash flow over here the more you
pay down the mortgages on rentals the
[485]
higher your cash flow and the more
potential of some taxes on that cash
[489]
flow so we're gonna we're gonna go
analyze this and create the backdoor SEP
[494]
so what was the rule we can't set up a
separ
[497]
because you don't have earned income and
you're not an employee which you can't
[501]
be of your own LLC so what we do is we
pay a management fee to a little sole
[507]
proprietor over here and we pay this
management fee to take a write-off over
[513]
here so let's say we want to spend 40
grand in management fees to yourself
[519]
which you would never normally do
because we don't want to pay FICA but if
[523]
your FICA is already maxed out over here
and so the FICA bill is really minor we
[529]
can pay this fee over here to a sole
proprietorship maybe taking hardly any
[534]
write-offs at all because you're gonna
maximize your write-offs here and then
[537]
we drive this 40 grand out we can
generate a ten thousand dollar SEP
[542]
deduction now that could bring pretty
cool that could be a great way to
[548]
backdoor into a separate off when the
FICA is minimal because you've already
[553]
maxed it out over here and so some
people are like man I want to drive as
[557]
much as I can into a SEP and self direct
it which is something I'll bring up
[561]
later this is a great way to create a
backdoor write-off but I want to be
[565]
careful to not pay too much FICA in the
loop and make sure it works for my
[570]
client
number four employees question mark
[574]
right some of you have talked to your
accountant or been on the web and say oh
[578]
well I have employees so I can't do a
set for myself without including my
[583]
employees what can which can get really
spendy quickly that's why again a 401k
[588]
with some proactive planning you can
create what's called a safe harbor 401k
[592]
and push down the matching for your
employees so you can still get a massive
[597]
benefit with the 401k again our
attorneys at our law firm are great at
[601]
this
I'd have you talk to Kevin Kennedy the
[603]
primary attorney in our office working
on 401ks for clients around the country
[608]
and we keep it affordable but again
that's for proactive planning moving
[611]
forward but let's say you're still
trying to find that last-minute tax
[614]
deduction and I had a call like this but
this very week from a client that said
[619]
well my accountant said I can't do a SEP
unless I include my employees so let's
[623]
go to the white board and see what real
rules are here so we go back to our opps
[627]
and assets and we're gonna focus over
here on our sole proprietor or our
[634]
escort and so we're going to decide
which bucket we're gonna play with and
[639]
so let's let's do the plain old sole
proprietorship okay and this could be an
[644]
LLC sole proprietorship and let's say
you've got that hundred grand in profit
[648]
well I had a client this week that said
well mark I have two full-time employees
[653]
and so I can't do the SEP without
including them and I said really
[659]
how long have these employees been with
you and they said well one's been with
[663]
me about a year the other one about
eighteen months and I said BAM you only
[669]
have to include full-time employees that
have been with you for more than two
[675]
years full-time so once they became
full-time the clock started ticking so
[682]
for this year for my client in 2020 we
were able to jam out a septa duction and
[688]
make that contribution over here not
include any of the employees for this
[693]
year but because one of them was 18
months ago in 2021 that's okay we kill
[700]
this up move to the 401k and jam it down
and ramp up
[704]
401k this is why tax attorneys make the
big bucks is because we're saving you
[709]
ten times what you're paying us and
we're a tax law firm that has been
[713]
structured for the small business owner
on Main Street
[716]
you've none of those big law firms in
the city those are for those tax
[720]
attorneys are working for Wall Street
you know fortune when thousands or
[723]
whatever and they're spending we're
trying to do this affordably for our
[726]
clients so if this is blown you right
don't think you're out of the realm of
[729]
this this is a restaurant owner a
dentist a doctor a plumber an
[732]
electrician or realtor we love this
strategy so back to the board first you
[737]
can still do the SEP if you had no
full-time employees in the last two
[742]
years and here's the other perk
part-time employees don't count so when
[750]
I get on the phone with clients and
we're doing some planning I'm gonna
[754]
focus on number of part-time employees
versus full-time and when they started
[758]
and we still may be able to jump into
the set for this year and then convert
[762]
it later to a 401k number five the
fallback well sometimes I have to be the
[769]
bearer of bad news my clients have
full-time employees they've been around
[773]
for a couple years they didn't talk to
any sort of strategist about a 401 K
[778]
last year they want to do a SEP but they
can't without throwing down some major
[783]
contributions for their employees not
that they're bad people but it can get
[786]
too expensive so what are you what can
you do
[790]
there's really two options first just
consider a traditional IRA now if you
[795]
make too much money you can't contribute
to a traditional IRA and get a write-off
[799]
so that brings into the play the Roth
the backdoor Roth IRA which I'm a huge
[804]
fan of so if you can't do the SAP you're
too late for the 401 K you make too much
[810]
money I had another client this week
call up and say yeah my account said I
[815]
can't do a Roth I make too much money so
go oh my gosh that's almost malpractice
[819]
because it is so easy to do what's
called a backdoor Roth or you make a non
[823]
deductible contribution to a traditional
and then on day 2 convert it to a Roth
[828]
and you can still do this for the prior
year up until April 15th now if that
[833]
blew your brain I've got a video on
YouTube just on backdoor Roth IRAs
[838]
over there to that video by just typing
kohler backdoor Roth and you'll love it
[842]
so don't think all is lost
I still want you funding to Roth every
[847]
year just like Dave Ramsey would tell
you to do and I have some great videos
[850]
on how to get massive returns on a Roth
IRA because the other kicker in all this
[855]
is I want you to self-direct your SEP
self direct your 401k or your eyes eye
[860]
arrays or SEP or your Roth and do that
in an account where you invest in what
[866]
you know best and that's called self
directing and you kind of pull your
[869]
money part of it or good portion of it
you choose into a trust company that
[874]
allows you to self direct and invest it
and you get it out of Wall Street
[878]
there's no penalty there's no tax again
search YouTube Kohler self-directing
[883]
you'll love it finally number six what
do we do next year we knew we kind of
[887]
screwed up I had to do the SAP and it's
not the perfect fit and my business is
[892]
growing I may have employees coming down
the pipe what do we do next year so back
[896]
to our diagram you're over here with the
sole prop LLC or an S Corp or an LLC
[903]
taxes in a LLC taxes and escort and so
what we do is we do our set this year
[909]
however we're gonna do it and we take
whatever write-off we can get anything's
[914]
better than something is better than
nothing so we get rolling here now next
[918]
year what we do is we adopt a 401 K and
maybe a solo 401 K because you don't
[924]
have any full-time employees and this
401 K can now be self-directed by you
[928]
create LLC's and businesses and invest
it even do it real estate whatever you
[933]
want with this 401 K get better rates of
returns than an ETF or a mutual fund and
[937]
this SAP rolls into the 401 K no
penalties no tax and you can just roll
[947]
it up into this 401 K or you can even
roll it out to an IRA or roll it out to
[954]
an IRA and convert to a Roth so you have
all these choices to help you use that
[960]
SEP that you had to use it the last
minute and get it right off now we can
[964]
take it and invest it and move it around
with no penalties and no tax well there
[969]
you go now you know so much more about
the SEP 2
[972]
order to be the captain of your own ship
now you can bring this up with your tax
[976]
advisor or if you're doing your own tax
return do some additional study and make
[980]
sure you nail it get it right off now
and maybe use that SEP as a last minute
[983]
write-off hope this was helpful
also please note every week I'm shooting
[988]
new videos to help you save taxes
protect your wealth as a lawyer and also
[993]
hope you build your business and wealth
as we help guide our clients through all
[997]
sorts of cool strategies that bring it
all together so please press on the
[1002]
subscribe button below hit the bell icon
so every time I shoot a video you get a
[1006]
little ping and I know it'll save you
tons and share this video please with
[1010]
any of your friends or family or
partners to help them also in their
[1014]
quest to live the American dream thanks
so much
Most Recent Videos:
You can go back to the homepage right here: Homepage