Today TaxMama hears from Chris in the TaxQuips Forum, who puts out a challenge to TaxMama. He says, “Tax mama has advice for business owners. But how does an individual get more money on their paychecks?”
Goodness have I been neglecting wage-earners here at TaxMama.com? I am sorry! My daily TaxQuips are guided by the questions people ask. So thank you for asking!
Here are some ideas to help you:
1) Take full advantage of the cafeteria plans offered by your employer.
When you are paying expenses out of pocket anyway, running them through the company cafeteria plan means you don’t pay ANY taxes on that money – no income tax, no FICA, no Medicare. For many people, that’s worth 35% – 40% of each dollar.
- If you are paying for child care anyway, do it through the cafeteria plan – up to $5,000
- Medical insurance costs – if the company isn’t paying for it, or not paying for the whole premium, pay the rest through the cafeteria plan.
- Medical expenses – plan your medical costs, things like braces, Lasik surgery, elective surgeries, co-pays, dental work, etc. Run it through here.
2) If your company offers education plans – you may exclude up to $5,500 from wages.
3) Maximize the amount you set aside in your company’s retirement plan. Although you will pay the FICA and Medicare on those dollars, you won’t pay IRS or State taxes. That’s worth 25% – 35% savings per dollar. AND you have money set aside for when you need it.
- Some company retirement plans include employer matching of your contributions. Be sure to contribute enough to your own plan to get the maximum matching from your employer. If they’re willing to pay it – take full advantage of it.
- Note: Some company plans offer ROTH components. That means you don’t get a deduction for your contributions at all. BUT, you get all that money and the earnings on it tax-free when you retire.
- If your adjusted gross income (AGI) is low enough, you might even get a tax credit from IRS or your state for contributing to the plan.
4) Review your withholding. If you are getting high refunds when you file your tax returns each year, perhaps you should decrease your withholding so you have more money to live on, if money is tight each month. Use Form W-4 to make the adjustments.
These are some ideas to help you get started.
You will also find a wealth of articles to help people keep your taxes lowest in my weekly Equifax Blog. Have you seen it? It covers ways to take advantage of energy credits, writing off summer camp, getting money back by amending your tax returns, tax benefits for savers, and child-friendly tax credits…and more.
And there are even more tips in my MarketWatch column – every week during tax season and every month the rest of the year. That is purely devoted to ways individuals can keep their taxes lowest.
Does that help?
And remember, you can find answers to all kinds of questions about getting more money back, and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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