As the end of 2016 approaches, it's time for employers to think about filing Forms W-2 and 1099. Forms W-2 are issued to employees to report compensation, withholding tax, and other items related to compensation. Forms 1099 are most commonly issued by businesses for payments in excess of $600 to vendors for services, rent, and other miscellaneous types of income. Forms 1099 do not need to be issued for purchases of inventory or other products.  
 

Filing Deadlines

 
For calendar year 2016, the due date for sending Forms W-2 and 1099 to employees and vendors remains January 31, 2017.  
 
In previous years, the due date for sending copies of these forms to the Social Security Administration (SSA) and to Internal Revenue Service (IRS) was the end of February. But for calendar year 2016, the due date for sending copies of the forms to SSA and IRS has been moved up to January 31, 2017.  
 
The IRS indicates that receiving the forms earlier will make it easier to verify income and withholding reported on individual income tax returns and to hopefully identify potentially fraudulent requests for refunds.   
 

Penalties

 
The IRS continues to impose strict penalties for late or non-filers as well as for those with incomplete or erroneous information. And it is important to note that separate penalties may apply: one for the filing and one for the payee statement. For example, if you fail to file a correct Form 1099-MISC with the IRS and  don't provide a correct Form 1099-MISC statement to the payee, you may be subject to two separate penalties.   
 
As in prior years, business owners are required to attest to having filed these forms on their business income tax returns.

Additional Notes on Forms 1099

In order to complete Form 1099, the business needs to obtain the name, address, tax entity type, and tax ID number for the vendor. If the vendor is an LLC, the business needs to know if the LLC is taxed as a single-member LLC, a partnership, or an S-corporation. Forms 1099 do not need to be issued to S-corporations or C-corporations unless the corporation is an attorney’s office.   
 
Form W-9, Request for Taxpayer Identification Number and Certification, can be used to gather this information. Ideally, the form should be completed prior to payment to the vendor. We recommend businesses have a policy that vendors must complete and return Form W-9 before the business issues payment to avoid the scenario of scrambling at year end to get information that may be difficult to gather.
 
If the vendor uses a “DBA” (doing business as), that should be indicated on the W-9 and this name also needs to be shown on the Form 1099. Forms 1099 must be filed with the name registered with the IRS tax return and EIN. You may not use a Social Security number along with a business name.
 
Once forms are received, the IRS matches the names and tax identification numbers with income tax returns. The business will receive a notice if the identification number reported on the 1099 doesn’t match IRS records. If incorrect information isn’t corrected, IRS will notify the business to withhold 25% from future payments and remit this to the IRS. This is referred to as “backup withholding” and can be a cumbersome process. 
 
Instructions and forms can be found on the IRS website at www.irs.gov.  We are happy to answer questions and can complete these forms for you or train you how prepare the forms using QuickBooks.   
 

Changes to Deadlines & Penalties at a Glance
Form Deadline
2016 Forms W-2, W-3,  and certain Forms 1096 and 1099-MISC  January 31, 2017
2016 Forms 1099-MISC, if reporting nonemployee compensation payments in box 7 January 31, 2017
Late Filing of Forms W-2, W-2G, 1098 and 1099 Penalty
2016 information returns filed less than 30 days late $50 per return with a maximum fine up to $186,000
2016 information returns filed over 30 days late, but filed before August 1, 2017 $60 per return with a maximum penalty of $532,000
2016 information returns filed after August 1 or not at all $260 per return with a maximum penalty of $500,000. 
2016 information returns not filed due to intentional disregard of the rules $530 per return with an unlimited maximum penalty!

 

The IRS has again extended the deadline for employers subject to the Affordable Care Act’s (ACA’s) information reporting requirements to meet their obligations to employees. Last year, the IRS extended the 2016 deadlines for reporting 2015 information, giving employers an additional two months to provide employees Form 1095-B, “Health Coverage,” and Form 1095-C, “Employer-Provided Health Insurance Offer and Coverage.” The latest extension, however, extends the deadline for reporting 2016 information only 30 days, from January 31, 2017, to March 2, 2017. And, unlike the last extension, this one doesn’t include the deadline for filing the required forms with the IRS. 
 

Reporting requirements for ALEs

 
The ACA created Section 6056 of the Internal Revenue Code (IRC), which requires all applicable large employers (ALEs) — generally those with at least 50 full-time employees or the equivalent — to report to the IRS information about what health care coverage, if any, they offered to full-time employees. Employers generally must report this information on Form 1094-C, “Transmittal of Employer-Provided Health Insurance and Coverage Information Returns” and the aforementioned Form1095-C no later than February 28, or March 31 if filed electronically, of the year following the calendar year to which the reporting relates. This deadline hasn’t been extended.
 
Sec. 6056 also requires ALEs to furnish statements to employees that the employees can use to determine whether, for each month of the calendar year, they can claim a premium tax credit. The statements, which can be Form 1095-C or a substitute form, generally must be provided by January 31 of the calendar year following the calendar year to which the Sec. 6056 reporting relates — unless the IRS extends this deadline. The extension to March 2 for 2016 reporting in 2017 is automatic; employers needn’t submit any documentation to receive the benefit of it.
 

Reporting requirements for self-insured and smaller employers

 
Sec. 6055 of the IRC, also created by the ACA, requires health care insurers, including self-insured employers, to report to the IRS using Form 1094-B, “Transmittal of Health Coverage Information Returns,” and the previously mentioned Form 1095-B. The 2016 calendar year information must be reported by February 28, 2017, or, if filed electronically, March 31, 2017. This deadline hasn’t been extended.
 
Sec. 6055 also requires self-insured employers to furnish health care information to covered employees in statements, which can be Form 1095-B or a substitute form. With the extension, the employee statements must be provided by March 2, 2017. 
 
Every self-insured employer must report information about all employees, their spouses and dependents who enroll in coverage under the reporting requirements for insurers. This reporting is required even for self-insureds not subject to the ACA’s employer shared-responsibility provisions or the ALE reporting requirements. Self-insured ALEs must comply with the insurer requirements in addition to the Sec. 6056 requirements. 
 
Further, non-ALE employers must comply with the Sec. 6056 requirements if they’re members of a controlled group or treated as one employer for purposes of determining ALE status. The employers that compose such a controlled-group ALE are referred to as “ALE members,” and the reporting requirements apply separately to each member. 
 

Penalty relief for inaccurate reporting

 
The IRS is also providing the same good faith transition relief from certain penalties related to the ACA information return requirements that it provided for 2015 returns. The relief applies only to incorrect and incomplete information reported on a statement or return — it doesn’t apply to a failure to timely furnish or file a statement or return.
 
In determining whether the penalty relief applies, the IRS will consider whether an employer or other provider of coverage made reasonable efforts to prepare for reporting the required information to the IRS and furnishing it to employees and covered individuals. Reasonable efforts might include gathering and transmitting the necessary data to a third party to prepare the data for submission to the agency or testing its ability to transmit information. The IRS also will take into account the extent to which the employer or other coverage provider is taking steps to ensure that they can comply with the reporting requirements for 2017.
 

Act now!

 
With the deadline extension for furnishing statements to employees halved from the previous extension — and no extension to the deadline for reporting to the IRS — employers should begin collecting the necessary information for compliance as soon as possible. They also should formalize their processes and procedures to ensure timely compliance in future years, as the IRS has explicitly stated that it doesn’t anticipate extending the deadlines or the penalty relief for reporting for 2017. 
 
Although with the changes in Washington, it’s possible some or all of the ACA could be repealed, that doesn’t necessarily mean the reporting requirements won’t still be in effect for 2017. So it’s best to be prepared.
 
If you have questions about complying with the ACA’s information reporting requirements, don’t hesitate to contact us. We’d be pleased to help.

The IRS recently issued its 2017 cost-of-living adjustments. Because inflation remains relatively in check, many amounts increase only slightly, and some stay at 2016 levels. As you implement 2016 year-end tax planning strategies, be sure to take these 2017 adjustments into account.

Individual income taxes

Tax-bracket thresholds increase for each filing status but, because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket increases by $50 to $100, depending on filing status, but the top of the 35% bracket increases by $1,875 to $3,750, again depending on filing status. 

2017 ordinary-income tax brackets

Tax rate

Single

Head of household

Married filing jointly or surviving spouse

Married filing separately

10%

          $0 –     $9,325

           $0 –   $13,350

           $0 –   $18,650

           $0 –     $9,325

15%

    $9,326 –   $37,950

  $13,351 –   $50,800

  $18,651 –   $75,900

    $9,326 –   $37,950

25%

  $37,951 –   $91,900

  $50,801 – $131,200

  $75,901 – $153,100

  $37,951 –   $76,550

28%

  $91,901 – $191,650

$131,201 – $212,500

$153,101 – $233,350

  $76,551 – $116,675

33%

$191,651 – $416,700

$212,501 – $416,700

$233,351 – $416,700

$116,676 – $208,350

35%

$416,701 – $418,400

$416,701 – $444,550

$416,701 – $470,700

$208,351 – $235,350

39.6%

         Over $418,400

         Over $444,550

         Over $470,700

         Over $235,350

The personal and dependency exemption remains unchanged at $4,050 for 2017. The exemption is subject to a phaseout, which reduces exemptions by 2% for each $2,500 (or portion thereof) by which a taxpayer’s adjusted gross income (AGI) exceeds the applicable threshold (2% of each $1,250 for separate filers).

For 2017, the phaseout starting points increase by $1,250 to $2,500, to AGI of $261,500 (singles), $287,650 (heads of households), $313,800 (joint filers), and $156,900 (separate filers). The exemption phases out completely at $384,000 (singles), $410,150 (heads of households), $436,300 (joint filers), and $218,150 (separate filers). 

Your AGI also may affect some of your itemized deductions. An AGI-based limit reduces certain otherwise allowable deductions by 3% of the amount by which a taxpayer’s AGI exceeds the applicable threshold (not to exceed 80% of otherwise allowable deductions). The thresholds are the same as for the personal and dependency exemption phaseout.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability is greater than your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. For 2017, the threshold for the 28% bracket increased by $1,500 for all filing statuses except married filing separately, which increased by half that amount. 

2017 AMT brackets

Tax rate

Single

Head of household

Married filing jointly or surviving spouse

Married filing separately

26%

 $0  –  $187,800

 $0  –  $187,800

$0  –  $187,800

  $0  –  $93,900

28%

Over $187,800

Over $187,800

Over $187,800

Over $93,900


The AMT exemptions and exemption phaseouts are also indexed. The exemption amounts for 2017 are $54,300 for singles and heads of households and $84,500 for joint filers, increasing by $400 and $700, respectively, over 2016 amounts. The inflation-adjusted phaseout ranges for 2017 are $120,700–$337,900 (singles and heads of households) and $160,900–$498,900 (joint filers). (Amounts for separate filers are half of those for joint filers.)

Education- and child-related breaks

The maximum benefits of various education- and child-related breaks generally remain the same for 2017. But most of these breaks are also limited based on the taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within the applicable phaseout range are eligible for a partial break — breaks are eliminated for those whose MAGIs exceed the top of the range.

The MAGI phaseout ranges generally remain the same or increase modestly for 2017, depending on the break. For example:

The American Opportunity credit. The MAGI phaseout ranges for this education credit (maximum $2,500 per eligible student) remain the same for 2017: $160,000–$180,000 for joint filers and $80,000–$90,000 for other filers. 

The Lifetime Learning credit. The MAGI phaseout ranges for this education credit (maximum $2,000 per tax return) increase for 2017; they’re $112,000–$132,000 for joint filers and $56,000–$66,000 for other filers — up $2,000 for joint filers and $1,000 for others.

The adoption credit. The MAGI phaseout ranges for this credit also increase for 2017 — by $1,620, to $203,540–$243,540 for joint, head-of-household and single filers. The maximum credit increases by $110, to $13,570 for 2017. 

(Note: Married couples filing separately generally aren’t eligible for these credits.)

These are only some of the education- and child-related breaks that may benefit you. Keep in mind that, if your MAGI is too high for you to qualify for a break for your child’s education, your child might be eligible. 

Retirement plans

Only a few retirement-plan-related limits increase for 2017, and even those increases are only slight. Thus, you have limited, if any, opportunities to increase your retirement savings if you’ve already been contributing the maximum amount allowed:


 Type of limitation

2016 limit

2017 limit

 Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$18,000

$18,000

 Annual benefit for defined benefit plans

$210,000

$215,000

 Contributions to defined contribution plans

$53,000

$54,000

 Contributions to SIMPLEs

$12,500

$12,500

 Contributions to IRAs

$5,500

$5,500

 Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$6,000

$6,000

 Catch-up contributions to SIMPLEs

$3,000

$3,000

 Catch-up contributions to IRAs

$1,000

$1,000

 Compensation for benefit purposes for qualified plans and SEPs

$265,000

$270,000

 Minimum compensation for SEP coverage

$600

$600

 Highly compensated employee threshold

$120,000

$120,000


Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits all will increase for 2017:

Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if the taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan: 

Taxpayers with MAGIs within the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution. 

But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $5,500 contribution limit (plus $1,000 catch-up if applicable and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may be beneficial if your MAGI is also too high for you to contribute (or fully contribute) to a Roth IRA. 

Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for both traditional and Roth IRAs.)

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both adjusted annually for inflation. For 2017 the amount is $5.49 million (up from $5.45 million for 2016). 

The annual gift tax exclusion remains at $14,000 for 2017. It’s adjusted only in $1,000 increments, so it typically increases only every few years. It increased to $14,000 in 2013, so it might go up again for 2018.

Impact on your year-end tax planning and retirement planning

The 2017 cost-of-living adjustment amounts are trending higher than 2016 amounts, but only slightly. Regarding retirement-plan-related limits, only a few increased, and they increased minimally. How might these amounts affect your year-end tax planning or retirement planning? Contact us for answers. We’d be pleased to help.

The unexpected election of Donald Trump as President of the United States, along with Republicans retaining control of both chambers of Congress, will likely result in an overhaul of the U.S. tax code. 

Based on Trump’s tax reform plan released earlier this year, tax law changes may include a reduction in tax rates for some individual taxpayers and corporations, the elimination of several tax breaks, a restructuring of U.S. taxes on income from abroad, the elimination of the estate tax, and a partial or full repeal of the Affordable Care Act.

Political capital and control

Even though Trump won the electoral college, he lost the popular vote by a slim margin, thus possibly limiting his political capital. Republicans retain control of the Senate but didn’t reach the 60 members necessary to become filibuster-proof. So their simple majority won’t be enough to pass legislation in the Senate. In the House, Republicans retain control by a margin similar to their current one. 
This outcome likely will result in less opposition from Democrats and a greater opportunity to enact significant tax law changes in the coming year. Yet it also likely will require Republicans to compromise on some issues in order to get their legislation through the Senate. 

Proposed tax changes for individuals and businesses

President-elect Trump’s tax reform plan includes the following changes that would affect individuals:

Proposed changes that would affect businesses include:

Bear in mind that uncertainty has surrounded the details of President-elect Trump’s tax reform plan. However, during the course of the campaign, some of its provisions have gelled with the House Republicans’ tax plan. 

Planning uncertainties

With President-elect Trump soon to be in the White House and continued Republican control of the Senate and the House, major tax law changes likely are on the horizon. However, at this time it’s difficult to determine which provisions of the ambitious tax reform plan will be signed into law. This uncertainty makes tax planning difficult. We can help develop a plan that can take into account all of the variables. 

 

Shopping, anyone? If your business is in need of office equipment, computer software or perhaps an HVAC system, the purchase you make today could provide you with a tax break tomorrow — or, more specifically, when you’re ready to file your 2016 taxes. The Section 179 expensing deduction remains a solid potential tax-saving value for today’s companies.

Expensing your buys

Sec. 179 of the Internal Revenue Code allows businesses to elect to immediately deduct — or “expense” — the cost of certain tangible personal property acquired and placed in service during the tax year. This is instead of claiming the costs more slowly through depreciation deductions. The election can only offset net income, however. It can’t reduce it below $0 to create a net operating loss.

The election is also subject to annual dollar limits. For 2016, businesses can expense up to $500,000 in qualified new or used assets, subject to a dollar-for-dollar phaseout once the cost of all qualifying property placed in service during the tax year exceeds $2 million.

Improving real property, too

The expensing limit and phaseout amounts would have been far lower had Congress not passed the Protecting Americans from Tax Hikes Act in late 2015. The new law made the limits permanent, indexing them for inflation beginning this year. It also makes permanent the ability to apply Sec. 179 expensing to qualified real property, such as eligible leasehold-improvement, restaurant and retail-improvement property.

Finally, the new law permanently includes off-the-shelf computer software on the list of qualified property. And, beginning in 2016, it adds air conditioning and heating units to the list.

Considering all options

You can use Sec. 179 expensing for both new and used property. A related tax break, bonus depreciation, applies only to new property. Be sure to consider all options when purchasing assets. Questions? Please call us — we can help you identify the right depreciation tax breaks for your business. 

A great deal of attention is paid to individual tax identity theft — when a taxpayer’s personal information (including Social Security number) is used to fraudulently obtain a refund or commit other crimes. But businesses can also be victims of tax identity theft.

Significant consequences

Business tax identity theft occurs when a criminal uses the identifying information of a business, without permission, to obtain tax benefits or to enable individual identity theft schemes. For example, a thief could use an Employer Identification Number (EIN) and file a fraudulent business tax return to claim a refund or refundable tax credits. Or a fraudster may report income and withholding for fake employees on false W-2 forms. Then, he or she can file fraudulent individual tax returns for the “employees” to claim refunds.

In many cases, businesses don’t even know their information has been stolen until they’re contacted by the IRS. The consequences can include significant dollar amounts, lost time sorting out the mess and damage to your reputation.

Signs your business could be a victim

There are some red flags that indicate possible tax identity theft. For example, your business’s identity may have been compromised if you receive:

Steps to take

If you receive a letter or notice from the IRS that leads you to believe someone fraudulently has used your business EIN, respond immediately to the contact information provided. Contact us for more information about how to proceed.

We are quickly approaching the end of 2016. Now is the time to consider some year-end tax savings strategies for your business, before the year – and the opportunity – slips away.

Good News Bad News

The good news is that we have more certainty from a tax perspective this year because Congress made permanent many long-favored tax breaks (called extenders) late last year. The national elections, however, bring a fair amount of uncertainty to tax and financial planning.

Important Considerations

No matter the results of the election, though, there are important considerations to keep in mind as your business plans for year-end:

Defer or Accelerate?

Since tax rates in 2016 and 2017 are the same, in many cases it might make sense to plan ahead to defer income into 2017 and accelerate deductions into 2016. You will, of course, need to confer with your business tax advisor and take into consideration your tax accounting method and other elements of your tax planning process.

Section 179 Expensing and Bonus Depreciation

If you are contemplating the purchase of business assets, consider using the Section 179 expense deduction to claim significant write-offs for the cost of new and used equipment, software additions, and improvements to interiors of leased nonresidential buildings. The maximum amount of qualifying property that a business can expense for 2016 is $500,000. If the total of qualifying property purchased in 2016 exceeds $2,010,000, the amount of the Section 179 limitation is reduced dollar for dollar equal to the amount of excess purchases.

A couple of cautions to keep in mind: 

The 50% bonus depreciation deduction is also available for new property purchased in 2016. The combination of Section 179, 50% bonus depreciation and normal first year depreciation provides significant possibilities for reducing taxable income.

There are many factors that go into the decision to acquire business assets—many of them non-tax factors. However, the Section 179 deduction and other depreciation deductions should play a role in your decision making process and could enable your business to obtain property you need earlier and at reduced after-tax costs.

We can help

If you are uncertain about what steps make sense for your business to take before year-end, call us. We can discuss your particular situation and offer advice on what makes sense for you and your business.

One of the most common inquiries clients have for their accountants is “What documents do I need to save, and for how long?” Retaining, organizing, and filing old records can become a burden, both at the business and individual levels. As we all strive to achieve a more "paperless" process, how do we determine what warrants taking up valuable office and storage space and what does not?

Records should be preserved only as long as they serve a useful purpose or until all legal requirements are met. To keep files manageable, it is a good idea to develop a schedule so that at the end of a specified retention period, certain records are destroyed.

At Stockman Kast Ryan + Co., we have developed a Records Retention Schedule we think you will find helpful. Although it doesn't cover every possible record, it does cover the most common ones. As always, please feel free to ask us should you have specific questions or concerns.

Records Retention

 

If you have incomplete or missing records and get audited by the IRS, your business will likely lose out on valuable deductions. Here are two recent U.S. Tax Court cases that help illustrate the rules for documenting deductions.

Case 1: Insufficient records

In the first case, the court found that a taxpayer with a consulting business provided no proof to substantiate more than $52,000 in advertising expenses and $12,000 in travel expenses for the two years in question. 

The business owner said the travel expenses were incurred “caring for his business.” That isn’t enough. “The taxpayer bears the burden of proving that claimed business expenses were actually incurred and were ordinary and necessary,” the court stated. In addition, businesses must keep and produce “records sufficient to enable the IRS to determine the correct tax liability.” (TC Memo 2016-158)

Case 2: Documents destroyed

In another case, a taxpayer was denied many of the deductions claimed for his company. He traveled frequently for the business, which developed machine parts. In addition to travel, meals and entertainment, he also claimed printing and consulting deductions.

The taxpayer recorded expenses in a spiral notebook and day planner and kept his records in a leased storage unit. While on a business trip to China, his documents were destroyed after the city where the storage unit was located acquired it by eminent domain.

There’s a way for taxpayers to claim expenses if substantiating documents are lost through circumstances beyond their control (for example, in a fire or flood). However, the court noted that a taxpayer still has to “undertake a ‘reasonable reconstruction,’ which includes substantiation through secondary evidence.”

The court allowed 40% of the taxpayer’s travel, meals and entertainment expenses, but denied the remainder as well as the consulting and printing expenses. The reason? The taxpayer didn’t reconstruct those expenses through third-party sources or testimony from individuals whom he’d paid. (TC Memo 2016-135)

Be prepared

Keep detailed, accurate records to protect your business deductions. Record details about expenses as soon as possible after they’re incurred (for example, the date, place, business purpose, etc.). Keep more than just proof of payment. Also keep other documents, such as receipts, credit card slips and invoices. If you’re unsure of what you need, check with us.

In addition to providing for your own retirement needs, a qualified retirement plan also offers valuable tax savings for the dental practice, and can help attract and retain quality employees. The good news is that you don’t need to invest in a complicated plan. There are several retirement plans that actually look, act and feel like a traditional 401(k) plan —without the cost and complexity. This is not an all-inclusive list, but is intended to discuss a couple of the more popular plans for dental practices. 
 

SIMPLE IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a good start-up plan for small dental practices that do not currently sponsor a retirement plan. You agree to match up to 3 percent of an employee’s salary dollar-for-dollar or make a 2 percent non-elective contribution for each eligible employee. If the employee contributes 2 percent of salary, the practice matches that 2 percent. If an employee contributes 10 percent, the practice is only on the hook for the 3 percent match. 
 
Pros: 
 
Affordable to set up and maintain — Just use the forms provided by the IRS, set up the plan and notify your employees. You may be eligible for a tax credit of up to $500 per year for each of the first three years for the cost of starting the plan.  Administrative costs are minimal, and no annual IRS reporting is required. 
 
Matching contributions are deductible — Money you put in for employees is deductible as a business expense. 
 
Employees have control of their retirement savings — Employees can terminate their salary reduction contributions, and may roll over their funds to a traditional IRA or another employer’s retirement plan at any time. 
 
Cons:
 
Contributions are mandatory — As the employer, you are required to make contributions to your employee’s accounts each year — even if the practice is having a lean year. You can choose whether to make a matching contribution up to 3 percent of salary or a 2 percent non-elective contribution for each eligible employee. You must give written notice of the funding percentage annually to each participant no later than 120 days after the plan year ends. You can also reduce the matching percentage, but not below 1 percent, and not for greater than 2 out of every 5 years. 
 
Employer contribution limits  could be lower — The maximum contribution amount for an employee is $12,500 for 2016  — quite a bit lower than other retirement plans. Employees older than 50, can make an additional $3,000 catch-up contribution each year Employers are limited to the amount of contributions discussed above. 
 
There is a deadline for opening — SIMPLE IRA accounts must be opened by October 1 in order to make contributions for that tax year.
 

SEP IRA

A Simplified Employee Pension (SEP) IRA is a good choice for solo practitioners or those with just a few employees. Contributions are paid directly into an IRA created for each employee, and the same investment, distribution and rollover rules as a traditional IRA apply. Contributions to a SEP are tax deductible, and the practice pays no taxes on the earnings on the investments. The employee is also free to supplement the SEP-IRA with another retirement plan. 
 
Pros:
 
Easy set-up and maintenance — Just like a SIMPLE IRA, set up is simple and fees are minimal. In addition, there are no annual filing requirements with the IRS.
 
Larger employer contributions are possible — The practice may contribute up to the lesser of $53,000 (2015-2016) or 25 percent of compensation for each  participant. 
 
You don’t have to contribute every year — You are not locked into making annual contributions. In fact, you decide each year whether, and how much, to contribute to your employees’ SEP-IRAs. 
 
Cons:
 
The employer makes all of the contributions — Unlike a SIMPLE IRA, where part of the contribution can be taken out of employees’ salary, a SEP IRA requires the employer to make 100 percent of the contributions.
 
Contribution percentage must be the same for everyone — You cannot pay yourself a higher contribution percentage than your employees.
 
All employees must be included if they meet minimum requirements — This can be expensive as the practice grows and you start adding employees. 
 
 
Dental professionals often neglect retirement savings while building their practice. Yet, building a nest egg for yourself and your employees doesn’t have to be complicated or expensive. 
 
We can help recommend, based on your retirement goals and other factors, what type of plan would be best suited for your practice.