July 2026

Simple Retirement Planning Options for Small Business Owners

Offering retirement benefits can be a valuable way for small business owners to attract and keep employees. But if you’re worried about the cost or administrative burden, you’re not alone. The good news is that there are several relatively simple retirement plan options available, including a Simplified Employee Pension plan, commonly known as a SEP.

Setting Up a SEP Plan

A SEP plan can generally be established for a tax year by the due date of the business’s income tax return, including extensions. Eligible employers typically set up the plan using IRS Form 5305-SEP, “Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement.”

The plan is considered adopted once the form is completed, SEP IRAs are established for all eligible employees, and employees receive the required information, including a copy of the form. Form 5305-SEP doesn’t need to be filed with the IRS.

Employers can generally claim a current income tax deduction for contributions made on behalf of employees. Employees usually aren’t taxed on traditional SEP contributions when the contributions are made. Instead, distributions are taxed when withdrawn, typically during retirement.

Employers may also allow SEP contributions to be made to a Roth IRA, known as a Roth SEP, on an after-tax basis. These contributions are taxed in the year they’re made, but qualified Roth withdrawals may be tax-free. This option is relatively new and isn’t offered by all plans.

For 2026, the maximum deductible contribution to a SEP-IRA, and the amount that may be excluded from an employee’s income, is the lesser of 25% of compensation or $72,000 per employee. For business owners who don’t receive a W-2 from the business, such as unincorporated sole proprietors, the contribution calculation is slightly different.

Employees can’t make their own contributions to a SEP plan. However, they do control their individual SEP IRAs, including selecting investments from the available options.

Other Key Considerations

SEP plans come with certain requirements. In general, all regular employees who meet the eligibility rules must be included in the plan, and contributions can’t favor highly compensated employees.

One advantage of SEP plans is that they usually involve less administrative work than many other retirement plans, such as 401(k) plans. SEP plans generally don’t require extensive recordkeeping, and there are no annual reports to file with the IRS. In many cases, the SEP-IRA trustee, such as a bank or brokerage firm, handles much of the recordkeeping.

Comparing Other Retirement Plan Options

Some small businesses with 100 or fewer employees may also want to consider a Savings Incentive Match Plan for Employees, or SIMPLE plan.

A SIMPLE IRA allows an employer to establish an IRA for each eligible employee and make either required matching contributions or a 2% nonelective contribution. SIMPLE IRAs are generally easier to administer than 401(k) plans.

A SIMPLE 401(k) is structured as a 401(k) plan but follows SIMPLE plan rules. If certain requirements are met, it isn’t subject to the more complex nondiscrimination testing rules that typically apply to traditional 401(k) plans.

For 2026, employee elective deferrals to SIMPLE IRAs and SIMPLE 401(k)s are generally limited to $17,000. Employees age 50 and older may also be eligible to make additional catch-up contributions.

Get Professional Guidance

The right retirement plan depends on several factors, including your company’s size, cash flow, employee needs and long-term business goals. Before choosing a plan, consider working with a qualified tax or financial advisor to evaluate your options and determine which solution best fits your business.

Tax Implications of Renting Out Your Vacation Home

Renting out your vacation home when you’re not using it can be a great way to earn extra income. But it can also create tax consequences, depending on how many days the property is rented and how often you use it personally.

Understanding the 14-Day Rule

In some cases, rental income from a vacation home may be tax-free. If you rent the property for 14 days or fewer during the year, you generally don’t have to report the rental income on your tax return.

However, your deductions are limited. You may generally deduct property taxes and qualified mortgage interest if you itemize deductions, but you can’t deduct rental operating expenses or depreciation. The property tax deduction is subject to the state and local tax deduction cap, and mortgage interest is deductible only for your principal residence and one additional home, subject to applicable limits.

Renting for More Than 14 Days

If your vacation home is rented for more than 14 days during the year, the rental income generally must be reported as taxable income. In return, you may be able to deduct a portion of operating expenses and depreciation, subject to specific rules.

Expenses must be divided between personal and rental use. For example, assume the home is rented for 90 days and used personally for 30 days. In that case, 75% of the total use is rental use because the home was rented for 90 out of 120 total use days.

Using that example, you may allocate 75% of certain expenses, such as maintenance, utilities and insurance, to rental use. You may also allocate 75% of depreciation, mortgage interest and property taxes to the rental activity.

The personal-use portion of property taxes may be separately deductible as an itemized deduction. The personal-use portion of mortgage interest on a second home may also be deductible, but only if personal use exceeds the greater of 14 days or 10% of rental days and the home mortgage interest deduction rules are satisfied. Depreciation on the personal-use portion isn’t allowed.

Can You Deduct a Rental Loss?

If deductible expenses exceed rental income, you may be able to claim a rental loss, but the rules depend on personal use.

If your personal use of the vacation home is more than the greater of 14 days or 10% of rental days, the property is generally treated as a personal residence. In that situation, deductions related to rental use generally can’t create a loss. Instead, those deductions are limited to rental income, and unused deductions may be carried forward to future years.

If the property isn’t treated as a personal residence based on your personal use, expenses must still be allocated between personal and rental use. However, the home is generally considered a rental property. If rental deductions exceed rental income, you may be able to claim the loss. Keep in mind that the loss is typically considered passive and may be limited under the passive activity loss rules.

Plan Before You Rent

The tax rules for vacation homes can be complicated, especially when a property is used for both personal and rental purposes. Additional rules may apply if you qualify as a real estate professional or own multiple rental properties. Before renting out your vacation home, consider consulting a tax advisor to understand how the rules apply to your situation.

Why It’s Time to Reassess Your Emergency Fund Goals

An emergency fund is an important part of long-term financial security. But as your expenses, income, family needs and financial priorities change, the amount you need in emergency savings may change as well. Reviewing your reserves regularly can help ensure you have enough cash available to support your lifestyle and overall financial plan.

How Much Should You Save?

Financial professionals have traditionally recommended keeping three to six months’ worth of living expenses in an easily accessible account. However, the right amount depends on your household’s specific financial situation.

Start by recalculating your emergency savings target. Focus on essential expenses — the costs needed to maintain your household, including housing, utilities, groceries, insurance, transportation and health care. Then compare that amount with your current emergency savings.

If your savings fall short, consider creating a disciplined plan to gradually rebuild your fund. This can help restore financial confidence without disrupting your broader savings, investment or retirement goals.

For households with steady employment, multiple income sources or significant nonretirement investment assets, three months of reserves may be enough. Others may need six months or more. Individuals with variable income, business owners, single-income households and those nearing retirement often choose to maintain larger reserves for added flexibility.

The objective isn’t to hold as much cash as possible. Rather, the goal is to maintain the right level of liquidity to support both short-term stability and long-term financial progress.

Make Your Cash Work Harder

It’s also important to review where your emergency savings are held. If you’re keeping a large cash balance in a traditional savings account earning minimal interest, you may want to consider other options.

High-yield savings accounts, money market accounts and short-term Treasury securities may offer better returns while still providing a high degree of liquidity and safety.

Tax efficiency is another factor to consider. Interest income from savings and money market accounts is generally taxable, which can reduce your net return over time. Depending on your situation, you may be able to position your reserves more tax-efficiently without giving up easy access to funds.

Stay Ready for the Unexpected

An emergency fund is designed to provide stability and flexibility during uncertain times. By reviewing your savings strategy regularly, you can help ensure your reserves continue to support your lifestyle, financial priorities and long-term goals.

Backup Withholding: Key Facts for Businesses

In most cases, businesses aren’t required to withhold taxes from payments made to independent contractors. However, certain situations can trigger the IRS backup withholding rules.

Backup withholding most commonly applies when a contractor doesn’t provide a correct Social Security number or Employer Identification Number, or fails to properly complete Form W-9, “Request for Taxpayer Identification Number and Certification.”

When backup withholding is required, the business must withhold 24% from payments made to the contractor and remit the amount to the IRS using Form 945, “Annual Return of Withheld Federal Income Tax.” The withheld amount must also be reported on the appropriate Form 1099.

Are Elder Care Costs Tax-Deductible?

If a parent or elderly family member is moving into a nursing home, there may be tax implications to consider. In some cases, long-term care expenses may qualify as an itemized medical expense deduction if total eligible medical expenses exceed 7.5% of adjusted gross income. Only the amount above that threshold is deductible.

Payments to a nursing home generally qualify if your relative is staying there primarily for medical care, rather than only custodial care, or if the relative is chronically ill.

If you claim your relative as a dependent, you may usually include the medical expenses you pay on their behalf with your own medical expenses when calculating your deductible amount.

IRS Simplifies Reporting Rules for Partnership Sales

Final IRS regulations provide relief for partnerships by eliminating the requirement to furnish detailed gain and loss information to selling partners by January 31. That deadline had become a source of concern for many partnerships.

Under the tax code, any portion of a partnership sale proceeds attributable to a partner’s share of unrealized receivables and inventory items must generally be reported as ordinary income. Other sale proceeds are typically taxed as capital gains. Partnerships had argued that the January 31 reporting deadline was difficult to meet.

Under the final regulations, partnerships may now provide this information to partners as part of their regular year-end tax compliance process, on or with Schedule K-1.

Review Your Midyear Financial Performance

July is a natural time for small business owners to pause and evaluate how the year is progressing. By reviewing year-to-date revenue, expenses, profit margins and cash flow, business owners can better understand whether they’re on track to meet their annual goals.

A midyear financial review can also help identify issues before they become bigger problems. For example, rising supply costs, slower customer payments, lower-than-expected sales or increased payroll expenses may affect profitability. Catching these trends early gives business owners time to adjust pricing, reduce unnecessary expenses, improve collections or update their budget for the remainder of the year.

This is also a good opportunity to review estimated tax payments, retirement plan contributions and potential deductions. Working with a tax or financial advisor midyear can help small business owners make informed decisions before year-end, rather than waiting until tax season.