Expertise From Enrolled Agent Education Helps Workers With Side Jobs Defer Tax Impact
The knowledge of IRS enrolled agents permits them to work as tax advisers in addition to preparing tax returns. This is particularly valuable to taxpayers who earn extra income to supplement wages from their jobs. These individuals benefit from minimizing the tax impact of their sideline income.
Side jobs are increasingly common for people who want to put aside some money for the future. This situation is especially common as households are spending more of their current income to reduce debt. Fortunately, enrolled agent education reveals some details about how to defer the tax consequences of income from side jobs. This entails utilizing retirement plans that set aside the self-employment income for the future.
However, knowing some tax rules from enrolled agent study is critical to properly advising people with both wages from jobs and earnings from self-employment. A common area of concern for these workers is how their self-employment retirement plans are affected by similar plans at work.
An enrolled agent can explain how contribution limits are separately calculated for different types of retirement plans. For example, an employee of a small business with a SIMPLE IRA plan can create a distinctive SEP IRA plan for self-employment earnings. However, contribution limits are combined for employees with other types of multiple plans. Therefore, anyone with self-employment income must exercise caution in establishing a retirement plan for earnings from side jobs while having a 401(k) with an employer. In addition, people with a SIMPLE at work and a SIMPLE for self-employment are confronted with a single contribution limit for both plans combined.
An important area of EA continuing education is reinforcing the facts about different retirement plans for the self-employed. One reason for this is that the annual contribution limits are subject to cost-of-living adjustment by the IRS each year.
An employee is allowed to contribute $16,500 to a 401(k) for 2011. The total annual contributions to a SIMPLE IRA plan by an employee are limited to $11,500. A $2,500 catch-up contribution is permitted for an individual over age 50. This is also the maximum for the SIMPLE of a self-employed person. However, a matching contribution is provided from the business that is capped at 3 percent of income.
Many individuals with self-employment income establish a SEP IRA for their sideline earnings. Contributions to a SEP are not affected by contributions made as an employee to the 401(k) or SIMPLE at work. However, enrolled agent classes convey that any contributions by an employer to a 401(k) reduce the allowed SEP contribution from self-employment income. The combined contributions cannot exceed 25 percent of net self-employment income – not including the SEP contribution itself – up to the annual maximum for 2011 of $49,000.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.