Home / Articles / Year-end tax planning should include a look at retirement plans

Year-end tax planning should include a look at retirement plans

November 7, 2013

Share:

As the end of the year approaches, many people are wondering what their tax bill might look like for 2013, and if there is anything they can do before year-end to mitigate tax increases. Some individuals will see dramatic tax increases when they file for 2013 due to:

1.    An increase in individual tax rates from 35% to 39.6%;
2.    A .9% Medicare tax on earned income;
3.    An additional 3.8% Medicare tax on passive income;
4.    A 3% of AGI reduction in itemized deductions; and
5.    An elimination of personal exemption deductions.

Because of these increases, many taxpayers will be looking for ways to shelter income and save taxes. It is not too late to consider re-designing existing 401(k) profit sharing plans or establishing a defined benefit plan to help offset potential tax increases. Consider the following opportunities for a defined benefit plan:

1.    Professional service corporations and other small or medium sized businesses.  A defined benefit plan paired with an existing 401(k) profit sharing plan can provide substantial benefits for owners or key employees with minimal additional benefits for rank-and-file employees.

2.    “Other” earned income not generated by the primary employer.  Sources of income that can be paid directly to an individual or a separate entity owned 100% by an individual (e.g., director fees or unrelated consulting fees) can be sheltered by a 401(k) profit sharing plan or defined benefit plan.

3.    Sole Proprietors.  We can assist with the establishment of a defined benefit plan for sole proprietors with significant income.

4.    New non-controlled group entities.  Those with newly established entities that receive income from unrelated third parties or from a related, but non-controlled group entity.  Under these circumstances, a new 401(k) profit sharing plan or defined benefit plan can be established to help shelter income.

For more information on utilizing these tax mitigation options, contact Bill Edwards, Chair of the Qualified Plan Administration and Consulting Group at Clark Schaefer Hackett at [email protected]

For more information please review these related articles:

Year End Tax Planning: Expiring tax breaks for businesses may merit action now 

IRS provides guidance on additional 0.9% Medicare tax 

Tackling the new Medicare tax and rental activities

Despite some legislative relief, many individuals will see higher taxes in 2013

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

Guidance

Related Articles

Article

2 Min Read

Ohio Tax Update: HB 515 Sale of a business may qualify for Ohio Business Income Deduction treatment

Article

2 Min Read

Ohio Bill May Provide Tax Relief to Small Business Owners

Article

2 Min Read

Standard business mileage rate will increase for the second half of 2022

Article

2 Min Read

Proposed regulations for inherited IRAs bring unwelcome surprises

Article

2 Min Read

Get your piece of the depreciation pie now with a cost segregation study

Article

2 Min Read

Dodge the tumult with a buy-sell agreement

Get in Touch.

What service are you looking for? We'll match you with an experienced advisor, who will help you find an effective and sustainable solution.
  • Hidden
  • This field is for validation purposes and should be left unchanged.