What are the deductions before tax?

Disputances before tax are deductions that can be used to discount the amount of taxable wages for which the person owes taxes. Without these deductions, the individual would in most cases owe income taxes of all its gross wages. With these deductions, however, this amount decreases and becomes a tax advantage. Many things can be qualified as deductions before tax. The tax credit is a direct value based on the taxpayed taxes. For example, a USD of USD 100 means that the taxpayer owes money for this $ 100 from income. If the person was 10 % of the tax band, the value would be $ 10. However, a $ 100 loan means that $ 100 is removed from the amount of taxes owed. Therefore, the tax credit of $ 100 in this hypothetical situation is more valuable than the tax deduction of $ 100. Fica, which includes social security taxes and Medicare, is also influenced. These deductions before tax can significantly reduce the amount of money paid to this program.

The purpose of deductions before tax is to create motivation for people to be responsible with their money and plan ahead for certain eventualities. This includes health care costs and retirement. Theoretically, even if the government takes less money for these deductions, it is still a pure benefit to the government, because individuals who are planning ahead will not need so much government help in the future.

One of the most common deductions before taxation is health care. This may include premium health insurance or money payments that are placed on a savings account. In some cases, they may be subject to benefits used from deductions before tax on income tax on the federal or one level.

Disputances before tax are also used when an employee invests in a savings pension, such as 401 (K). These often have another advantage that they also have employer contributions. Together this provides a great motivation for those who 'They do the benefits of income to use it later.

Another common deduction before tax is for flexible expenses. These accounts can be used for treatment expenses, childcare or even pre -school expenses in a private school. However, those who use such an account must certainly spend money by the end of the calendar year. The inability to spend all the money in the account will lead to forfeiture of this money.