Suppose you’re thinking about setting up a retirement plan for yourself and your employees. However, you’re concerned about the financial commitment and administrative burdens involved. There are a couple of options to consider. Let’s take a look at a Simplified Employee Pension (SEP) and a Savings Incentive Match Plan for Employees (SIMPLE).

SEPs offer easy implementation.

SEPs are intended to be an attractive alternative to “qualified” retirement plans, particularly for small businesses. The appealing features include the relative ease of administration and the discretion that you, as the employer, are permitted in deciding whether or not to make annual contributions.

If you don’t already have a qualified retirement plan, you can set up a SEP just by using the IRS model SEP, Form 5305-SEP. By adopting and implementing this model SEP, which doesn’t have to be filed with the IRS, you’ll have satisfied the SEP requirements. This means that as the employer, you’ll get a current income tax deduction for contributions you make on your employees’ behalf. Your employees won’t be taxed when the contributions are made, but will be taxed later when distributions are received, usually at retirement. Depending on your needs, an individually-designed SEP, instead of the model SEP, may be appropriate for you.

When you set up a SEP for yourself and your employees, you’ll make deductible contributions to each employee’s IRA, called a SEP-IRA, which must be IRS-approved. The maximum amount of deductible contributions you can make to an employee’s SEP-IRA in 2025, and that he or she can exclude from income, is the lesser of 25% of compensation or $70,000. The deduction for your contributions to employees’ SEP-IRAs isn’t limited by the deduction ceiling applicable to an individual’s contributions to a regular IRA. Your employees control their individual IRAs and IRA investments, the earnings on which are tax-free.

You’ll have to meet other requirements to be eligible to set up a SEP. Essentially, all regular employees must elect to participate in the program, and contributions can’t discriminate in favor of highly compensated employees. But these requirements are minor compared to the bookkeeping and other administrative burdens associated with traditional qualified pension and profit-sharing plans.

The detailed records that traditional plans must maintain to comply with the complex nondiscrimination rules aren’t required for SEPs. And employers aren’t required to file annual reports with the IRS, which, for a pension plan, could require the services of an actuary. The required recordkeeping can be done by a trustee of the SEP-IRAs, usually a bank or mutual fund.

SIMPLE plans meet IRS requirements

Another option for a business with 100 or fewer employees is a Savings Incentive Match Plan for Employees (SIMPLE). Under these plans, a SIMPLE IRA is established for each eligible employee, with the employer making matching contributions based on contributions elected by participating employees under a qualified salary reduction arrangement. The SIMPLE plan is also subject to much less stringent requirements than traditional qualified retirement plans. Or, an employer can adopt a SIMPLE 401(k) plan, with similar features to a SIMPLE IRA plan, and avoid the otherwise complex nondiscrimination test for traditional 401(k) plans.

For 2025, SIMPLE deferrals are allowed for up to $16,500 plus an additional $3,500 catch-up contribution for employees age 50 or older.

Unique advantages

As you can see, SEP and SIMPLE plans offer unique advantages for small business owners and their employees. Neither plan requires annual filings with the IRS. Contact us for more information or to discuss any other aspect of your retirement planning.

Once your 2024 tax return is in the hands of the IRS, you may be tempted to clear out file cabinets and delete digital folders. But before reaching for the shredder or delete button, remember that some paperwork still has two important purposes:

1. Protecting you if the IRS comes calling for an audit, and
2. Helping you prove the tax basis of assets you’ll sell in the future.

Keep the return itself — indefinitely.

Your filed tax returns are the cornerstone of your records. But what about supporting records such as receipts and canceled checks? In general, except in cases of fraud or substantial understatement of income, the IRS can only assess tax within three years after the return for that year was filed (or three years after the return was due). For example, if you filed your 2022 tax return by its original due date of April 18, 2023, the IRS has until April 18, 2026, to assess a tax deficiency against you. If you file late, the IRS generally has three years from the date you filed.

In addition to receipts and canceled checks, you should keep records, including credit card statements, W-2s, 1099s, charitable giving receipts, and medical expense documentation, until the three-year window closes.

However, the assessment period is extended to six years if more than 25% of gross income is omitted from a return. In addition, if no return is filed, the IRS can assess tax any time. If the IRS claims you never filed a return for a particular year, a copy of the signed return will help prove you did.

Property-related and investment records

The tax consequences of a transaction that occurs this year may depend on events that happened years or even decades ago. For example, suppose you bought your home in 2009, made capital improvements in 2016, and sold it this year. To determine the tax consequences of the sale, you must know your basis in the home — your original cost, plus later capital improvements. If you’re audited, you may have to produce records related to the purchase in 2009 and the capital improvements in 2016 to prove what your basis is. Therefore, those records should be kept until at least six years after filing your return for the year of sale.

Retain all records related to home purchases and improvements even if you expect your gain to be covered by the home-sale exclusion, which can be up to $500,000 for joint return filers. You’ll still need to prove the amount of your basis if the IRS inquires. Plus, there’s no telling what the home will be worth when it’s sold, and there’s no guarantee the home-sale exclusion will still be available in the future.

Other considerations apply to property that’s likely to be bought and sold — for example, stock or shares in a mutual fund. Remember that if you reinvest dividends to buy additional shares, each reinvestment is a separate purchase.

Duplicate records in a divorce or separation

If you separate or divorce, be sure you have access to tax records affecting you that your spouse keeps. Or better yet, make copies of the records since access to them may be difficult. Copies of all joint returns filed and supporting records are important because both spouses are liable for tax on a joint return, and a deficiency may be asserted against either spouse. Other important records to retain include agreements or decrees over custody of children and any agreement about who is entitled to claim them as dependents.

Protect your records from loss.

To safeguard records against theft, fire, or another disaster, consider keeping essential papers in a safe deposit box or other safe place outside your home. In addition, consider keeping copies in a single, easily accessible location so that you can grab them if you must leave your home in an emergency. You can also scan or photograph documents and keep encrypted copies in secure cloud storage so you can retrieve them quickly if they’re needed.

We’re here to help

Contact us if you have any questions about record retention. Thoughtful recordkeeping today can save you time, stress, and money tomorrow.

When we prepare your tax return, we’ll check one of the following filing statuses: single, married filing jointly, married filing separately, head of household, or qualifying widow(er). Only some people are eligible to file a return as a head of household. But if you’re one of them, it’s more favorable than filing as a single taxpayer.

To illustrate, the 2025 standard deduction for a single taxpayer is $15,000. However, it’s $22,500 for a head of household taxpayer. To be eligible, you must maintain a household that, for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent.

Tax law fundamentals

Who’s a qualifying child? This is one who:

• Lives in your home for more than half the year,
• Is your child, stepchild, adopted child, foster child, sibling, stepsibling (or a descendant of any of these),
• Is under age 19 (or a student under 24), and
• Doesn’t provide over half of his or her own support for the year.

If the parents are divorced, the child will qualify if he or she meets these tests for the custodial parent, even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.

Can both parents claim head of household status if they live together but aren’t married? According to the IRS, the answer is no. Only one parent can claim head of household status for a qualifying child. A person can’t be a “qualifying child” if he or she is married and can file a joint tax return with a spouse. Special “tie-breaker” rules apply if the individual can be a qualifying child of more than one taxpayer.

The IRS considers you to “maintain a household” if you live in the home for the tax year and pay over half the cost of running it. In measuring the cost, include house-related expenses incurred for the mutual benefit of household members, including property taxes, mortgage interest, rent, utilities, insurance on the property, repairs and upkeep, and food consumed in the home. Don’t include medical care, clothing, education, life insurance, or transportation.

Providing your parent a home

Under a special rule, you can qualify as head of household if you maintain a home for your parent even if you don’t live with him or her. To qualify under this rule, you must be able to claim the parent as your dependent.

You can’t be married

You must be single to claim head of household status. Suppose you’re unmarried because you’re widowed. In that case, you can use the married filing jointly rates as a “surviving spouse” for two years after the year of your spouse’s death if your dependent child, stepchild, adopted child, or foster child lives with you and you maintain the household. The joint rates are more favorable than the head of household rates.

If you’re married, you must file jointly or separately — not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year and your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain the household,” you’re treated as unmarried. If this is the case, you can qualify as head of household.

Contact us. We can answer questions about your situation.