HOW YOUR BUSINESS CAN SAVE ON TAXES
AND ATTRACT TALENT AT THE SAME TIME

By:  Jeffrey E. Taylor, CLU, ChFC

There are more than 23 million independent business owners in the United States (National Business Association website statistic, 1999).  Like you, these entrepreneurs have set out to realize the dream of owning and running their business.

You know the hard part isn’t always starting the business – it’s staying in business.  Meeting the challenges of the first few years is critical to your business’ success.  These include building a reputation and a client base, attracting and retaining valuable employees, and offering quality products and services despite slim profit margins.

What does your survival plan look like?  Does it include an employer-sponsored retirement plan?  Because employer-sponsored retirement plans are primarily for the benefit of employees, your initial reaction may be to ask “What’s in it for me?”  The answer:  “A lot!”  Sponsoring a retirement plan for employees can help meet some of the challenges mentioned above.

First, immediate benefits include a corporate and personal tax reduction.  Sheltering money from taxes is especially important when you are trying to grow your business.  Second, an employer sponsored pension plan can improve your company’s employee relations and recruiting capabilities.  And certainly not least important, you need to save for your own retirement, too.

Save On Taxes 

A tax-qualified, employer-sponsored retirement plan is a plan that qualifies for special tax treatment in exchange for meeting several eligibility, contribution and distribution requirements.  Qualified plans, such as Simplified Employee Pension Plans, Profit-Sharing Plans, Money Purchase Plans and 401(k) Plans may be suitable for corporations, partnerships and sole proprietorships.  These plans offer several important tax advantages:

• First, you’ll save on business taxes.  The money you contribute for your employees is deducted from your company’s taxable business profits, thereby reducing your company’s federal tax bill.

• Second, you’ll save on personal taxes.  The money you contribute as salary deferrals for yourself and for your employees is deducted from your respective taxable personal incomes.

• Third, you’ll defer taxes on saving and investment gains.  Contributions and earnings in employer-sponsored pension plans compound on a tax-deferred basis.  You don’t pay income taxes on the money until it is distributed to you at retirement.

Attract And Retain The Best And The Brightest

Talented, valued employees are the key to revenue.  An employer-sponsored plan is an essential component of a competitive company benefits package.  It can help you attract and retain the brightest, most talented employees, while decreasing your federal tax obligation.  And, an  employer-sponsored retirement plan – especially one that includes employer matching contributions – is an effective method of generating good will among your employees.  Service requirements and vesting schedules for these plans can provide a means to help retain valuable employees.

Choosing The Plan For Your Company

There are a number of different types of plans.  Some are easy to establish and maintain; others require IRS filings, reporting and ongoing administration.  It is important to seek the advice of an experienced financial professional, who can help you choose a plan that addresses your needs.  

This article should not be used as a basis for legal or tax advice.  In any specific case, the parties involved should seek the guidance and advice of their own legal and tax counsel.