Year-End Tax Stunt
I'm in the process of pulling out a year-end tax stunt, which, if successful, will reduce my 2004 federal income tax by more than $600. I am not 100% sure it will work, but I do put high hopes on it.
This is only made possible by my wife's recent employment: besides election for 2005 benefits, my wife also has a chance to elect the benefits for the remaining 1.5 months in 2004. At first, I didn't think it as a big opportunity -- of course one will elect for maximum 401(k) contribution in our situation, but what's more than that?
Over the weekend, I just realized that now we can relive the history once again by making another decision on flexible spending accounts (FSA), for the year of 2004.
As I disclosed in my recent discussion of 2005 benefit choices, I didn't elect for Dependent Care FSA last year due to lack of expense visibility. Had we had the visibility that we will spend more than six grand in daycare this year, we would have rushed to the FSA choice. After all, the difference in my case can be as high as $650 (see analysis here).
The fact that my wife can still sign up for 2004 Dependent Care FSA opens the door for us. Accoding to the online election tool, my wife can elect to deduct $1,666.67 every pay period for the rest three pay periods in 2004 to contribute a total of the maximal allowed amount of $5,000 to the 2004 FSA account.
I am saying "I am not 100% sure" because there are still some risks in pulling out this trick. For one, we are uncertain whether my wife's semi-annual payroll will have $1,666.67 to contribute to FSA, after 6% 401(k) contribution to get the maximized employer match, and 7.45% FICA tax.
Hopefully, this nice Christmas gift is coming our way. Success or failure, I will report back at PFBlog.
Now the 2005 benefit enrollment season is over, I just realized I had a chance to do better. It looks like I made a $413 mistake in my Flexible Spending Account selection. Read
A week ago, I was expecting a $650 windfall by exploiting some benefit enrollment loopholes associated with my wife's recent employment (see Year-End Tax Stunt). Unfortunately, I was outbeat by certain terms in the Plan. The $650 benefit is now reduced to $75. Read
Flexible Spending Account (FSA) is the third thing I want to discuss in this benefits series (see Part 1 - 401(k), and Part 2 - Life Insurance). FSA allows employees to divert some pre-tax income for important purposes like dependent care and medical expenses. Microsoft ... Read
While I'm becoming used to the $900+ monthly day care expense as part of my family's permanent cost structure, it's growingly important for me to understand how to drive the most tax benefits out of this line that represents more than 15% of my total ... Read
I'm not sure about this, but I thought that the expenses had to be incurred after you start contributing to the plan? It'd be a good thing to double-check, otherwise you might lose the unreimburseable amount.
You are right. It is not very much a saving opportunity.
