What are tax-deferred opportunities?

Deferring or postponing taxes to a later date offers an opportunity make tax-deferred investments that can be a valuable saving. It allows you to save money by investing in individual retirement accounts (IRAs), annuities, and certain types of bonds, and pay taxes on when the money is withdrawn.

This money is known as pre-tax dollars and can be invested in specific products such as IRAs. By making tax-deferred investments, you are able to lower your taxable income so you are taxed less since it appears your income is less and in a way it is. Tax lawyers know this method very well.

SIMPLE

SIMPLE (Savings Incentive Match Plan for Employees) retirement plan is a plan effective for the tax years starting after 1996. It is an incentive plan designed to help employees save for retirement purposes on a tax-favored basis. It is particularly suitable for self-employed or small business owners or employees.

One benefit of SIMPLE plans is that due to its streamlined features, it is not subject to, intricate qualification requirements that are linked with tax-qualified retirement plans. As a result, administrative and legal costs are minimized. From an employer's perspective, other benefits are that these plans are subject to simplified reporting requirements. Also, employers will not be subject to fiduciary liability that can result from their employee or employee’s beneficiary, exercising control over the assets in the SIMPLE account, according to tax attorneys.

Businesses eligible to adopt a SIMPLE plan are those that employ 100 or fewer employees, who earned at least $5,000 in compensation for the previous year (which would be almost anyone). These businesses should not maintain any other employer-sponsored retirement plan. Businesses that are presently eligible to establish a SIMPLE plan, but later on become ineligible, have a two-year grace period during which, they can continue to maintain the plan. Self-employed people, even if they have no employees, are still eligible for a SIMPLE plan.

A SIMPLE plan permits employees, to make voluntary contributions to an Individual Retirement Account (IRA). Employee contributions have to be based on a percentage of their compensation. These cannot exceed $6,000 per year, with inflation taken into account. Employers can select SIMPLE plans based on the number employees they have, how many employees participate in the plan, their wage base, and the employee turnover, say tax lawyers.

Normally, employees who received a compensation of at least $5,000 from their company during any two preceding years, and are reasonably expected to receive at least $5,000 in compensation from the company during the present year are eligible to participate in a SIMPLE plan.

There is no restriction on the percentage of salary that employees can choose to defer. This will not have any effect on the employer contributions, however it gives the employee considerable flexibility, as regards to the amount of compensation to defer.

Everyone must pay their taxes. It does not matter if you do not owe anything. Jack Swigert knows all about this. He was in outer space on Apollo 13 and he was late on his taxes and the IRS was still upset. So if you think that the IRS is going to cut you some slack you incorrect since even astronauts who are 200,000 miles above earth still must file their taxes. Swigert was not able to file so he probably had some answering to do since he should have taken care of this before he flew into space.

It is amazing there are people overseas who believe they do not have to file. This goes for ESL instructors in South Korea for instance, some of them think they do not have to file.

Even if you are overseas as well or in outer space, you can still have an IRA which leads us to the next topic.

Individual Retirement Accounts (IRAs)

IRAs are the most popular tax-deferred investments. You can contribute to a Traditional IRA with pre-tax dollars, depending on your level of income.  

There are several other tax-deferred investment opportunities. Annuities and stocks can also be invested in tax-deferred accounts as well. However, you need to determine what type of investments would suit your needs best.

If you find yourself having to face the IRS on issues such as audits, liens, Offer in Compromise, or any other matter, make sure to reach out to a tax lawyer today.

You can use this website (Tax.USAttorneys) or one of the USAttorney links above to find yourself the tax lawyer you need. This website works in outer space as well – any place there is Internet capability. This virtual tool has saved lives. Swigert did not have access to this site since it did not exist at that time but it does now. Take care of your taxes, this problem will not go away.