Updated: Apr 9, 2018
April 17th, 2018 is the lasts day for you to close the books on your 2017 taxes.
If you are a business owner, you have surely already gone over all your receipts and bank statements with a fine-tooth comb looking for itemized deductions. The largest deduction available for a small business owner is often overlooked. That is the Individual Retirement Account, (IRA). This deduction starts at $5,500 which can reduce your tax bill by over $1000.00 if you are in the 25% tax bracket.
The only real limitation imposed on who can open an IRA is that either the participant, or the spouse, must have “taxable compensation” during the year, which for IRA purposes means wages, salaries, commissions, self-employment income, professional fees, tips, alimony, and separate maintenance payments. It excludes passive income, which is earnings and profits from property (for example, rental income), income from interest and dividends, pension and annuity income, deferred compensation, income from certain partnerships, foreign earned income, housing costs, and any amounts excluded from income. So basically, if you are earning money you are more than likely eligible to contribute to your IRA.
The fact is, our beloved Uncle Sam rewards us for saving for our retirement. They cut us some slack on our tax bill and allow the funds to grow tax deferred until retirement. So why are more people not doing this? According to Nerd Wallet 75% of Americans believe that contributing to your IRA at tax time to get a deduction is illegal. The majority of tax preparers are not equipped with the knowledge or credentials to offer advice when it comes to retirement, so they only crunch the numbers you bring them, and don't make many suggestions do to regulatory standards.
The good news is you still have time to make a contribution up until April 17th, 2018. If you miss that deadline you can get a jump start on your 2018 contribution by saving money each month toward your IRA. Since an IRA is simply a special designation that tells the government that the money you are saving is earmarked for retirement.
The good news is you still have time to make a contribution up until April 17th, 2018.
You can start one with your bank in an IRA savings account or IRA certificate of deposit (CD). Any interest earned in that account will be considered tax deferred. You can set up an IRA with a brokerage account online like Stash Retire simply by indicating that the funds are qualified for special tax treatment for an IRA. Most self-directed brokerage accounts online will allow you to set one up from your phone or tablet. How easy convenient is that? Your insurance agent may be able to help you start one. In the state of Ohio an agent with a life insurance license can offer you a deferred flexible premium annuity as a place to accumulate IRA money. A Registered Representative, who is often disguised as your insurance agent or broker can also help you invest your money in various markets to diversify and increase the chances of your money growing faster. The options are plenty.
Don't leave money on the table if you don't have to. Deductions are a very valuable piece of your annual tax filings. The IRA is one of the deductions that can both save you on taxes now and make you a nest egg in the future. As always seek professional advice from a certified public accountant, IRS, or another licensed financial representative to help guide you through the process. There are limitations and guidelines that can be found on the Internal Revenue Service website, IRS IRA deduction chart.