The Twelve Days of Taxmas – Retirement Plans Startup Costs Tax Credit
As Christmas approaches, Klatzkin is putting a twist on a holiday classic. But rather than filling your head with drummers drumming and golden rings, we’re focused on providing important tax insights through “The Twelve Days of Taxmas” blog series that could help minimize your tax liability.
On the ninth day of Taxmas, my accountant gave to me a tax credit for some of the ordinary and necessary costs of starting a Simplified Employee Pension Plan (SEP), SIMPLE IRA plan, or qualified plan. The credit is 50% of usual and necessary eligible startup costs up to a maximum of $500 per year. A company can qualify to claim this credit if:
- 100 or fewer employees who received at least $5,000 in compensation in the preceding year;
- The company had at least one plan participant who was a non-highly compensated employee; and
- In the three tax years before the first year of eligibility, employees weren’t substantially the same employees who received contributions or accrued benefits in another employer plan, a member of a controlled group, or a predecessor of either.
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©2020 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.