3 employee benefits that can save you money on your taxes
Consider taking advantage of these options to reduce your tax burden
As today is tax day, you may find yourself wishing you had taken advantage of more ways to reduce your tax burden. There are plenty of legal ways to reduce your pre-tax income and help give yourself a break next time around. Here are three employee benefits many organizations offer that can save you money on your taxes.
The 401(k) plan, which has replaced pensions as the retirement plan for many U.S. employees, can help you money on your taxes as you save for the future, accountants say.
“401(k) plans can be a good benefit, which will also decrease taxable income while helping employees save for retirement,” says Vincenzo Villamena, managing partner at Online Taxman, a boutique CPA firm specializing in tax preparation for entrepreneurs, expats and others in special situations.
“In 2014, most employees are eligible to defer taxes on up to $17,500 by contributing to their 401(k) and up to $5,500 for an IRA,” says Scott Cramer, president of Cramer & Rauchegger. “Older workers can defer taxes on an additional $5,500 in a 401(k) and $1,000 in an IRA in 2014.”
In addition, individuals who earn up to $30,000 and couples that earn up to $60,000 are
eligible to receive a saver's credit, Cramer says. “This can increase a taxpayer's refund or reduce the tax owed by as much as $1,000 for an individual and $2,000 for couples for contributing to retirement through an IRA 401K.”
Keith Klein of Turning Pointe Wealth Management says his favorite tax-saving benefit is the Roth IRA. “Pay taxes now, and never pay taxes on the growth or withdrawal,” he says. “It is even better when the employer makes in an option as part of the 401(k), because you can put more money in than the traditional IRA.” Also, there aren’t income limitations.
“Lots of people like the a qualified plan such as a 401(k) (no tax on the contribution, no tax on the growth, pay tax on the withdrawal) but the math does not always work out for the benefit of the employee. Sometimes the math benefits the government. All plans can be beneficial, but there is no escaping doing the math.”
Check with your employer to see if there are any options for buying things with pre-tax money. Examples can include meal plans or transit cards. Villamena says he describes paying for necessary expenses while avoiding tax on the income as “a nice benefit.”
Ask about cafeteria plans as well, says financial consultant John Graves. Similar to other plans that take out money from your paycheck before it is taxed, “they allow pre-tax savings for annual health care costs or for some education costs.”
In addition, there may be an option to pay for supplemental life insurance with pre-tax dollars, Graves says, especially for senior-level executives.