SOURCE: Illinois CPA Society
CHICAGO, IL--(Marketwired - March 12, 2014) - The workplace offers an important starting point when looking for tax breaks. Certain costs are so vital that the government gives privileged tax treatment to individuals who plan ahead for these costs. The Illinois CPA Society has tips to help you reduce your income tax bill and enjoy tax-free growth, just by taking advantage of tax breaks in the workplace.
Increase Your 401k Contributions
Workplace retirement plans, such as a 401(k) or 403(b), are made with pre-tax dollars, grow tax free and are often accompanied by an employer match. When that money sits in your retirement account and grows tax free, that means it grows faster. Taxes must be paid on that money eventually, but only on withdrawals.
Save with your IRA
Your employer may allow you to contribute to your own IRA through payroll deductions. The funds go to an IRA that belongs to you. If you or your spouse are already covered by another plan at work, your IRA deduction can be limited. However, even a non-deductible IRA's income accumulates tax free until you withdraw it and your non-deductible contributions are not taxed.
Pay for Your Health Benefits
You can also avoid paying taxes on a portion of your salary that you designate for the year as estimated medical expenses. Health insurance premiums aren't the only way you can save on taxes. Flexible Spending Accounts (FSAs) and health savings accounts (HSAs) let you pay for medical expenses you know you'll have with before-tax dollars.
Another benefit along with retirement accounts, FSAs allow you to shelter salary that would pay for medical expenses. FSAs have some limitations. For example, you can only designate up to $2,500 as pre-tax FSA salary annually. However, you will forfeit your account balance if the money isn't used by the end of the year. You also forfeit your balance if you leave the company and don't elect COBRA coverage with the FSA. Although some employers allow you to carry over $500 to the following year, you must be accurate about estimating your upcoming medical expenses. Estimate your medical expenses wisely so that you don't forfeit any salary deferred.
An HSA is a medical savings account that is paired with a high deductible health insurance plan. Health Savings Accounts (HSAs) offer a great way to pay for future qualified medical expenses and save on taxes. If you are enrolled in Medicare, you can't participate.
HSAs earnings are exempt from federal tax and grow tax-free; there is no rule where you either use it or lose the money. You can use the balance in any year where you have medical expenses -- unlike the FSA where you have to use it for one calendar year. Also, you, not your employer, own the HSA. When you change jobs, your HSA balance can go with you.
Save on Your Work Commute
If you drive a car pool to work, you can receive up to $130 per month towards your commute. If you receive a transit pass, up to $130 per month is not taxable to you.
Your employer can also give you up to $250 of monthly parking near your place of work -- another nice tax free fringe benefit for you.
Your Local CPA Can Help
When looking for tax breaks and credits to help lessen your tax bill your local CPA can help. To find a CPA in Illinois with the unique qualifications and expertise to guide you through tax season visit the Illinois CPA Society's free "Find a CPA" directory at www.ICPAS.org.
About the Illinois CPA Society
The Illinois CPA Society, founded in 1903, is one of the largest state CPA societies in the nation, with more than 23,000 members. It is the premier professional organization that represents CPAs in Illinois. For more than a century the Society has advanced the highest ethical and financial standards of the profession and remains a leader in educating the public on financial issues.