J.K. Lasser's Your Income Tax 2022

CHAPTER 41Retirement and Medical Plans for Self-Employed

Self-employed persons and partners can take advantage of tax-sheltered retirement plans or simplified employee pension plans (SEPs) (41.2).

Advantages flow from: (1) tax deductions allowed for contributions to the plan (a form of forced savings); (2) tax-free accumulations of income earned on assets held by the plan; and (3) in limited cases, special averaging for lump-sum benefits paid from a qualified retirement plan on retirement.

If you have employees, you must consider the cost of covering them when setting up your plan.

If you do not have any other retirement plan and have no more than 100 employees, you may set up a salary-reduction SIMPLE plan.

If you choose to set up a retirement plan covering at least one participant who isn’t an owner or other highly-compensated employee, you may be eligible for a tax credit (41.6). And if you include automatic enrollment, you may claim an additional tax credit (41.6).

Sole proprietors who want to buy health coverage through a government exchange must use the Marketplace for individuals, not the SHOPs for small businesses. Selfemployed persons can pay for their health coverage on a more tax advantageous basis than other individuals because an adjustment from income (above-the-line deduction) may be claimed for their coverage.

If you have employees and want to help them pay for the cost of their personal medical insurance, you may be able to use a qualified small employer health ...