One of my favorite things about being a nurse practitioner entrepreneur is that the IRS lets me wear two hats when it comes to my retirement plan: employer and employee. That means I don’t get to pay myself just once, BUT TWICE, and it saves me A LOT on taxes!
- As the employee – Up to $20,500 or 100 percent of your compensation (whichever is less)
- As the employer – Profit-sharing up to 25 percent of your compensation
If you’ve got a side gig and a full-time job that already has a retirement plan, then another option might be to use what’s called a SEP (Simplified Employee Pension) IRA. As of 2022, SEP IRAs will allow you to contribute:
- As the employee – Up to $6,000 (assuming you didn’t already contribute to another IRA)
- As the employer – Up to 25 percent of your compensation or $61,000 (whichever is less)
No matter which type of self-employed retirement plan you decide to use, another huge benefit is that they will LOWER YOUR TAX BILL for the year. This is because the contributions (both as the employer and employee) are considered to be pre-tax. Therefore:
- Each dollar you contribute will count as a business expense.
- Greater business expenses will lower your taxable profits. Remember, profit = revenue – expenses!
- Lower taxable profits mean a smaller tax bill!
In other words, every dollar you GIVE TO YOURSELF is that much less that you have to hand over to the government. That’s all the more reason to UTILIZE THE TOOLS that the IRS makes available to you! So, MAX them out, and BUILD YOUR WAY to financial freedom. (I cover A LOT more on reducing your legal tax obligations in the “How to Lower Your Taxes!” course just FYI.)