You can take a tax deduction on employee benefits and compensation as a business expense. If you’re a small Salt Lake City business with employees, then you should know that you can claim deductions with the salaries and wages. But there are other benefits that are also tax deductible. For example, if you give your employees awards and bonuses, or if you offer a retirement plan, then you could have a taxable benefit.
Keep in mind that some employee benefits could be non-taxable or taxable. Non-taxable benefits include FICA and FUTA for tax purposes. Examples of taxable benefits include health insurance and group term life insurance. It’s important to know the difference you can follow both Salt Lake City and IRS regulations. This guide will explain the different types of benefits and the limitations or restrictions on some of those benefits.
1. Cafeteria Plans
Cafeteria plans are identified as Section 125 plans. This allows employees to choose from a wide array of benefits, which are paid through a payroll deduction. These costs protect employees from taxes, which means the employees receive a bigger amount of their earnings. It’s up to you to set up this plan since it can reduce employee pay which also lowers the FICA tax payment for both your business and your employees.
2. Health Plans
Most health plans are deductible by employers, including those found on the Affordable Care Act. No matter which health insurance you choose to offer, it must follow the strict requirements set by the IRS. An accountant in Salt Lake City can help you choose the best plan that will get you the most tax benefits. You can also hire an attorney or financial adviser to go over these plans with you to ensure they follow the IRS regulations. Then you can decide if you want to allow a deduction.
3. Awards, Bonuses & Gifts to Employees
If the gifts contain a monetary value, then that gift can be deducted. The only case in which a gift isn’t deductible is when the amount is so small that it doesn’t need to be reported. Some claim that $25 is the limit when giving gifts to employees. That same rule states that gift cards or certificates shouldn’t be given to employees since they’re not considered as tangible personal property. You can go over this with an accountant in Salt Lake City to ensure that you’re following the laws.
4. Retirement Contributions
Offering a retirement plan to your small business accountant can increase your company’s future security and net worth while decreasing your tax bill. The key is to create or offer a plan that satisfies IRS regulations. Then you can contribute tax deductions to that plan, which are tax-free unless you withdraw them. Some of the most common plans include Individual Retirement Accounts (IRAs), Keogh plans, SIMPLE plans, and Simplified Employee Pensions (SEPs).
5. Educational Assistance Programs
An educational assistance program occurs when an employer pays for textbooks, tuition, or other educational costs. This is especially the case if you want to train a highly competent small business accountant. Another case is when an employer offers on-site education and training. You may qualify for a tax deduction for offering education to your employees as long as you follow the IRS guidelines. An attorney can help you with this matter.