Self-Employed

Categories: Company Management, Tax

You run your own business. When you want to scream at the idiot who chose chicken instead of fish for the company holiday dinner, all you have to do is find a mirror.

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Finance: What is SEP?5 Views

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Finance allah shmoop what is s e p or sepp

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what's that i'm sorry we had to go there Think

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simplified employee pension plan except it's basically a personalized pension

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plan for business owners and is kind of a form

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of an ira The company contribute some amount of money

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to the sep and they get a tax deduction like

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they can deduct that is just a normal expense of

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running The business like engine is part of your normal

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operating costs You're running a business That amount of money

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is generally capped as a percentage of the total compensation

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given to the employees And step is an obvious tax

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deferment system for sole proprietors who can take advantage of

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this delay in pink tax is a kind of way

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to fund their own retirement The big catch here is

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that what the big boss pays herself while she has

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to pay to her employees as well Or rather she

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has to contribute the same percentage to their set that

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she has for her own compensation when the step is

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finally distributed often decades later those distributions are then taxed

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at normal ordinary income tax rates So yeah if you

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own a small chain of dry cleaners shops specializing in

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removing blood stains from clothing of mafia victims Well then

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you probably have enough money where it makes sense to

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set up your own set plan That way you can

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defer income and taxes on that income to a much

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later date when presumably your marginal tax rate will be

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lower than it is today That is if today you've

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earned two hundred grand and you're marginal tax rates forty

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five percent then you only keep fifty five cents on

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the last dollars that you earn But a couple of

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decades from now well you might be retired having already

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put your kids through assassins college and now instead of

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needing one hundred sixty three thousand dollars a year in

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net income after taxes while you live just fine on

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fifty grand So as you distribute back to yourself you're

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sepp which works just like that I remember instead of

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paying forty five percent tax on that marginal dollar you've

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distributed back to yourself Well now you only pay something

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like twenty percent tax so you keep eighty cents on

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those last dollars instead of only fifty five Well a

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set plan highly encourages people to save for old age

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or retirement The key differences between a normal ira and

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accept well in a seth you the business owner are

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the employer so only you contribute money to the sep

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like in normal cos one of the big benefits the

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company provides is matching a dollar for a dollar in

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ira contributions So if you're saving five grand a year

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into your eye right while your company with unlikely contribute

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an additional five grand into it So yeah in a 00:02:43.75 --> [endTime] nutshell that is wass ab sip Maybe not Whoa

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