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Serve up a cafeteria plan for employees

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in Small Business Tax,Small Business Tax Deduction Strategies

In the past, fringe benefits may have represented just a sliver of your company’s expenses, but now they consume a bigger piece of the pie. How can you keep costs down without hurting morale by reducing or eliminating benefits?

Strategy: Set up a Section 125 “cafeteria plan.” As the name implies, your company provides a menu of fringe benefits for employees to choose from. Thus, participating employees only take advantage of those benefits they truly want, while the company pays less overall.

Contributions to a cafeteria plan are made through a salary reduction plan. The contributions are deducted from employee paychecks and are, therefore, exempt from federal income tax withholding and employment taxes.

Here’s the whole story: A cafeteria plan must be a separate written plan maintained by an employer for employees under Section 125 of the Internal Revenue Code. It gives participants the opportunity to receive certain benefi...(register to read more)

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