Retirement Plans Startup Costs Tax Credit
Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan (like a 401(k) plan.) A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis.
If you qualify, you may claim the credit using Form 8881, Credit for Small Employer Pension Plan Startup Costs.
You qualify to claim this credit if:
The credit is 50% of your eligible startup costs, up to the greater of:
You may claim the credit for ordinary and necessary costs to:
You can claim the credit for each of the first 3 years of the plan and may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.
You can’t both deduct the startup costs and claim the credit for the same expenses. You aren’t required to claim the allowable credit.
An eligible employer that adds an auto-enrollment feature to their plan can claim a tax credit of $500 per year for a 3-year taxable period beginning with the first taxable year the employer includes the auto-enrollment feature.
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.