Avail Yourself of Your Employer's Tax-Advantaged Plans
• Dependent Care Benefits - If a taxpayer works and incurs child care expenses, he or she should check to see if their employer has a dependent care program. If the employer does provide dependent care benefits under a qualified plan, the taxpayer may be able to exclude up to $5,000 ($2,500 if Married Filing Separately) of child care expenses from his or her wages, which generally provides a greater tax benefit than the child care credit.
• 401(k) or Similar Retirement Plans - If an employer has a 401(k) plan, the employee can elect to defer (pre-tax) a maximum of $16,500 for 2010. If age 50 or older, the maximum is increased to $22,000. These plans are especially beneficial when the employer provides a matching contribution.
• Flexible Spending Accounts - Some employers provide flexible spending accounts, which allow an employee to make contributions on a pre-tax salary reduction basis to provide coverage for medical and dental expenses. However, the participant must use the contributed amounts for the qualified expenses, or else forfeit any amounts remaining in the account at the end of the plan year. Medical expenses paid for or reimbursed through pre-tax plans cannot be deducted as part of itemized deductions.
• Education Assistance Programs - If you are receiving educational assistance benefits through an educational assistance program provided by your employer, up to $5,250 of those benefits can be excluded from income each year. This employee benefit will expire after 2012 without Congressional intervention.
• Stock Purchase and Option Plans -
A variety of plans available to employers are designed to allow the employees to invest in the employer’s stock. The most commonly encountered are:
(1) Employee stock ownership plan (ESOP);
(2) Nonqualified stock option; and
(3) Incentive Stock Options (ISOs). Note: Because of the tax ramifications, it may be prudent for you to consult with this office prior to exercising a stock option, especially an ISO.
• Tax-Free (Income excludable) Employee Fringe Benefits – Provided the employer provides them, the law allows an exclusion from taxable income for the following benefits:
(1) The cost of up to $50,000 of group term life insurance.
(2) $230 (in 2011) per month for qualified parking.
(3) $230 (in 2011) per month for transit passes, and commuter transportation.
(4) $20 per month for bicycle commuting expenses.