If you had self-employment income in 2000 you can still cut your taxes for last year by setting up a simplified employee pension (SEP) plan. You can take 2000 deductions as long as your contribution is made by the due date of the return, including extensions. Contributions are limited to roughly 12%-13% of net self-employment income; the maximum contribution for 2000 is $25,500; SEPs involve minimal paperwork.
Suppose you crunch the numbers and discover you’re eligible for a $6,000 SEP contribution for 2000 but you don’t have an extra $6,000 to invest. You can borrow the money to invest and get a $6,000 deduction for 2000. If you tap a home equity line of credit you likely will be able to deduct the interest you pay. Over the rest of the year you can repay the loan.
In this scenario, how should you invest the money? In stocks, for long-term growth. However, if you prefer a cautious approach, considering the recent craziness on Wall Street, you can put the $6,000 into a money market fund. Each month, move $500 into stocks. This dollar-cost-averaging approach will help you buy low if the market continues stumbling in the following 12 months.
