4 Ways To Reduce Your Taxable Earnings Now

The workplace offers us great tax savings great tax savings opportunities.

The trouble is, for some workplace tax-savings programs, there’s a limited period of time during which we can opt-in – or change them. In industry speak, that window is called Open Enrollment. Generally, it starts between October 1-15 (varies by company).

So now’s the time to get smart so you can take action!

The benefits of these programs can be significant: it can reduce your income tax by lowering your tax bracket, and even allow you to enjoy tax-free growth if the funds are invested.  Keep reading below some major ways you can reduce your tax bill on-the-job.

1. Boost Your 401k Contributions

The 401k offers the meatiest tax savings opportunities. The reasons abound: first, it’s forced savings – coming right out of your paycheck. Second, any money you invest is pre-tax (so your taxable income is lower!). And third, your employer may incentivize you to contribute by supplementing your savings up to a certain percentage, called a “match.”

What this means is that from day one, a 401k enables you to almost double your money if your employer matches up to 100% of your contributions.

2. Save in your (SIMPLE) IRA

If your employer offers a Savings Incentive Match Plan for Employees (SIMPLE) IRA, you’ve got a leg up relative to your friends with 401ks; your employer is required to match your contributions up to 3% of your salary. Even if you don’t contribute anything, your employer is still required to contribute at least 2% of your salary. Furthermore, if you decide to leave your employer, the funds go with you.

That being said, the SIMPLE IRA has a lower contribution limit and a higher withdrawal penalty. But because your employer makes the decision of 401k vs IRA – what’s left for you to do is to opt in.

3. Pay For Your Health Benefits

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) let you pay for certain medical expenses with pre-tax dollars.The two most popular types of FSAs are healthcare and transit. Dependent Care FSAs (FSA) can also help assist parents with childcare expenses. How do these work? During your employer’s open enrollment (typically in November, or before year-end) you can choose how much money will be deducted from your paycheck in the coming year. Because that money is pre-tax, it lowers your tax bill.

Similar to FSAs, HSAs also offer a great way to pay for future medical expenses and save on taxes. While both FSAs and HSAs serve identical purposes, the rules governing both differ significantly, so make sure to get smart before deciding (your HR department can help!).

4. Save on Your Commute to the Office

You can also pre-allocate your earnings before tax to help pay for your daily commute to work. If you drive, or take mass transportation to get to work, you can set aside up to $130 per month towards qualified expenses, while additional amounts up to $250 may also be claimed for qualified parking expenses.

As a mass transit commuter, you may allocate up to $130 pretax dollars per month towards expenses like your transit pass, token, fare card or voucher that entitles you to travel mass transit at a discount or free of charge qualifies.

Benefits: Saves Taxes and Lower Your Tax-bracket

Taxes are consistently one of our largest ongoing expenses. It’s important to do everything possible to legally minimize tax liabilities and maximize our income. Speak with your HR department today to see what pre-tax paycheck deductions are available.