Retirement plans are another popular fringe benefit. There are three broad categories of retirement plans:

There are additional sporty features you can add to any of these three types of models. The most popular are salary reduction features, usually referred to as 401(k) or CODA (cash or deferred arrangement). Each retirement plan must file its own annual tax return. You can also elect to include vesting rights and integrate plan contributions for each employee with social security benefits. Vesting and integration are both ways to send more of the contributions towards the owners and more highly paid employees.

There are several special plans designed by Congress just for small businesses. The two most popular are the SIMPLE (Savings Incentive Match Plan) and SEP (Simplified Employee Pension plan). Both of these plans have no annual reporting requirements, and can be established with an easy one page IRS form (plus whatever paperwork your bank, insurance company or brokerage firm wants). However, there is no integration and full immediate vesting rights in these plans.

The SIMPLE plan offers an opportunity for you to put away $6,000 for yourself. The company must match dollar for dollar up to 3% of compensation. To get the company match, the employee must first elect to make the payroll deduction, which most probably won't. If they don't elect to put away funds themselves, then you can legally get the full benefit of the retirement plan yourself.

The SEP plan is a very flexible plan. You can choose up to the company filing date (i.e. after the year is over) to contribute anywhere from nothing to 15% (13% for sole proprietors, partners and S-corporation shareholders). You can also change the amount you contribute from year to year to meet the company's annual cash flow situation.

There are some complicated tax consequences to some of these benefits plans, so you should consult with your tax advisor. The biggest limitation is that sole proprietors, partners, and S-corporation shareholders over 2% cannot participate in fringe benefit plans other than retirement, and the retirement benefit is partially limited.

Sometimes you can get around these limitations. For example, if you are organized as a sole proprietor and your spouse works for you in the business, you can sign a spousal employment agreement which can include offering any or all of these fringe benefits. This arrangement will cut both income and self-employment taxes for you.