The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: Clarice on June 10, 2018, 12:03:43 PM
-
Hi all, thanks for having me.
I've spent some time researching the classic SEP v. SIMPLE for a small business, owned by a married couple, with 1 non-owner employee. I've built a calculator that will decide - quantitatively - for me. Please see the attached.
Even though I am now paying the non-owner employee more money, this is fully offset by the tax savings of the firm's much higher contributions to the SEP v. the SIMPLE.
With salaries of $340k and SIMPLE contributions of 3%, that puts total contributions at $10.2k. With SIMPLE contributions of 25%, that puts total contributions at $85k.
Of the $340k in salaries, $60k is paid to a non-owner. $60k at 3% = $1.8k versus $60k at 25% = $15k. That's a cost increase of $13.2k
Then, total contributions of $85k less $10.2k = $74.8k multiplied by the business's tax rate of 25% = $23.8 in tax savings.
Too, don't forget that the SEP's higher contribution limit allows immediately for more tax-sheltered savings, which is an incremental benefit.
Am I thinking about this the right way?