Every deductible dollar lowers taxable profit. See the tax it saves you.
Estimates the tax saved by a deductible business expense and the net after-tax cost of providing it.
A deductible business expense reduces taxable income, so the tax saved is the expense multiplied by your combined marginal tax rate. Subtracting that saving from the expense gives the true out-of-pocket cost after tax. For example, a 1,000 expense at a 30 percent combined rate saves 300 and nets out to a 700 cost.
The combined rate should reflect the marginal federal, state, and where relevant payroll tax that the expense actually offsets, since deductions save tax at the top of your income rather than at an average rate. Qualified and cafeteria plan benefits can add further advantages, such as reducing wages subject to certain payroll taxes, that this simple model does not separately quantify. The tool shows the direct deduction effect, not the full design of any specific plan.
It multiplies the deductible expense by your combined marginal rate, then subtracts that saving to show the net cost. A higher marginal rate produces a larger saving.
Use the marginal rate that the expense actually offsets, combining federal, state, and any relevant payroll tax. An average rate will understate the benefit.
No, it models the basic deduction effect and not every advantage of a specific qualified or cafeteria plan. Consult a tax professional for plan-specific savings.
See the exact formula and a worked example on our methodology page.