Most people don't think about taxes until the income-tax filing deadline in the spring. However, as a small business owner you are making a big mistake if you fail to think about what you need to do in October for your taxes.
SIMPLE Plan Deadline
If you'd like your company to offer a qualified retirement plan that has little hassle and only requires modest employer contributions to employee accounts, consider a SIMPLE plan (which stands for Savings Incentive Match Plans for Employees). This type of plan is limited to companies with 100 or fewer employees who received at least $5,000 in compensation in the preceding year.
The plan operates like a mini-401(k). Employees agree to contribute part of their salary to the plan (up to $12,000, or $14,500 if 50 or older, by the end of 2013). Employers then make a contribution for each eligible employee using one of two contribution formulas:
- Matching contributions (dollar-for-dollar) up to 3% of the employee's compensation for the year. For example, if an employee earning $40,000 contributes $5,000, your contribution would be $1,200 (which is 3% of $40,000). Note: If you're having a bad year but still want to continue the plan, you can opt for a percentage less than 3%, but you can only do this up to two times within five years.
- Nonelective contribution of 2% of compensation, regardless of whether the employee makes any contributions. If that $40,000-a-year employee makes no contributions, you would still have to contribute $800 (2% of $40,000).
SIMPLEs offer several advantages over other qualified retirement plans. There's no annual reporting to the government on your part if you use a SIMPLE-IRA. It's easy to budget for your annual contributions. For example, if you use the 2% option, you know at the start that your total contributions won't be more than 2% of payroll for eligible employees. However, it could be smaller if you use the 3% option because no contributions are required for an employee who doesn't make a contribution. Employees manage their own investments, so you have no fiduciary exposure. You can even choose a SIMPLE plan that lets employees choose their own financial institutions.
The drawback to SIMPLEs is that you, as the owner, can save less than you could with other qualified retirement plans, such as traditional 401(k)s, or SEPs.
Decide soon: October 1 is when you must set up and notify employees about the plan for the current year. However, companies that start up after this date can set up a plan as soon as it is administratively feasible. If a company previously had a SIMPLE plan, then using one for the current year must be done by January 1 for that year.
Find more details about SIMPLE plans in IRS Publication 560.
Notices on Obamacare
Regardless of whether you offer health coverage for your staff, you have to tell them about Obamacare as it relates to them. This notice requirement applies if your company's gross receipts are more than $500,000 and you have at least one employee (whether full- or part-time). Even though the employer mandate requiring companies with 50 or more employees to offer health coverage or pay a penalty has been postponed, this notice requirement has not been postponed.
The notice must be in writing and needs to tell employees about the marketplace (health-insurance exchanges), whether the employee is eligible for a federal tax credit to aid in paying premiums, and that employer contributions toward coverage may be lost if marketplace coverage is chosen.
The Department of Labor has model forms that you can use. One form is for employers offering health coverage and the other is for employers that do not.
Again, the deadline here is October 1 for existing employees, and then within 14 days of hiring new employees.
Filing Deadline for Extended Returns
If you are the owner of a sole proprietorship, partnership, limited liability company, or S corporation, you must report and pay tax on your share of company profits on your personal income tax return.
Deadline: If you obtained a six-month filing extension, the 2012 return, Form 1040, is due October 15. Being on extension, this is also the deadline for completing contributions to your qualified retirement plan. If you don't have a plan (and you didn't sign the paperwork for one before the end of 2012), you can still set up and fund a SEP plan for 2012 by October 15.
The author is an Entrepreneur contributor. The opinions expressed are those of the writer.
Barbara Weltman is president of Big Ideas for Small Business, Inc., a company that provides tax, financial, and legal information. She’s also the author of numerous books, including the most recent J.K. Lasser’s Small Business Taxes 2014 (Wiley 2013). She blogs at BarbaraWeltman.com/blog.