One of the things that I’m always encouraging other nurse practitioner business owners to do is utilize ways to decrease their tax bill for the year as much as possible. A beneficial way to do this and build up your retirement is to contribute to a SEP IRA.

A SEP IRA works just like a traditional IRA, except you can contribute to it twice: once as an employee and again as the employer.

The employee contribution works just like any other IRA – you can only save up to $6,500 for the year. However, the employer contribution limit is substantially higher: the lesser of 25 percent of your operating revenue or $66,000 for 2023.

What’s better is that every dollar you give yourself essentially lowers your taxable income by 20 cents. Just like contributions to a 401(k) or IRA, when you’re talking thousands of dollars, that credit against your tax bills adds up quickly.

For example, let’s say your business generated $100,000 in compensation after subtracting business expenses and self-employment tax. According to the worksheet for a SEP IRA:

$100,000 / 1.25 = $80,000

$80,000 x 0.25 = $20,000

In other words, you not only get to give yourself $20,000 for retirement, but you can also deduct $20,000 from your taxable income. If you’re in the 24 percent tax bracket, you’ll shave approximately $4,800 off your tax bill.

Unfortunately, given the taxes are due April 18th this year, you must decide fairly quickly if contributing to a SEP IRA is something that you’d like to do. Opening one is relatively easy. Simply visit your favorite financial provider (such as Vanguard or Fidelity) and look for a link to open an account. It only takes a few minutes, and you should be able to invest in all the same types of securities as you would with a regular IRA. 

Of course, if you miss the deadline or don’t have the cash this year to make a contribution, then no worries – you could always take advantage of it again next year.