13 Things You Can Pay for with Pre-Tax Dollars

Pre-tax dollars can go a lot further than regular dollars these days, especially if you're in a high tax bracket. My marginal tax rate is around 45%, so a $1,000 expense really only costs about $550 if I can pay for it with pre-tax dollars. Many people are surprised to learn about everything that can be purchased with pre-tax money, so in today's post, we'll go over the most popular items.

For the most part, the ability to purchase something pre-tax indicates that Congress and, thus, the IRS have decided that it wants to encourage the purchase of these items. If you align your spending values with those of Congress, your money will go much further.

#1 Business Expenses

The biggest category, of course, is business expenses. Any “ordinary and necessary” expense can be deducted (assuming it doesn't have to be depreciated over time or included in the cost of goods sold). The IRS bible for these is Publication 334, Chapter 8. Note that the IRS does not require you to make smart business decisions. “Ordinary and necessary” is, by necessity, pretty broad and pretty gray. As an example, WCI does an in-person corporate retreat every so often. We think this is “ordinary and necessary” to build team culture and increase the retention of employees. It ends up being a heck of a fun trip for everybody, though—all at 45% off the usual price.

#2 Healthcare

Healthcare is mostly paid for with pre-tax dollars these days. Health insurance premiums, whether paid by your employer or by you as a self-employed person, are tax-deductible. Many expenses are paid using a pre-tax Flexible Spending Account or Health Savings Account. Even if you don't have one of those, you could potentially deduct your healthcare expenses on Schedule A, although they are subject to a 7.5% of Adjusted Gross Income (AGI) floor.

#3 Financial Advisory Fees

Financial advisors can deduct their fees from your pre-tax retirement accounts. Some people don't want them to do this because they don't want those tax-protected, asset-protected accounts to be “raided,” preferring instead to pay the fees from cash flow or taxable assets. That's probably a mistake, though—at least for those in the upper brackets. If they take the fees out of the pre-tax accounts, you get to pay for them with pre-tax dollars.

More information here:

The Perfect Financial Advisor

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#4 Charity

Almost all charitable donations are made with pre-tax dollars. One might argue that if you don't itemize your deductions on Schedule A, that isn't the case. I would argue just the opposite. If you're taking the standard deduction, we all assume you're using some of it to support charities; you're just getting a little extra. If you're taking the standard deduction and not supporting any charities, shame on you.

But itemized deductions are hardly the only way to support charities with pre-tax dollars. Qualified Charitable Deductions (QCDs) are the best way for anyone of Required Minimum Distribution (RMD) age to donate to charity. If you use a Donor Advised Fund (DAF), you can get the charitable deduction any time you like, even if you distribute the money to charities later. And all that growth while the money is in the DAF? Yeah, that doesn't get taxed either. The charitable part of charitable trusts and annuities is also pre-tax, providing a substantial deduction when the entity is set up.

#5 Group Term Life and Disability Insurance

Does your employer offer you life and disability insurance? That's pre-tax; it's a business deduction. And if you die, the life insurance benefit goes to your beneficiaries and can be spent without ever being taxed. That isn't the case for the disability insurance benefit, unfortunately. When those premiums are paid pre-tax, the benefits are taxable.

#6 Bad Investments

Lost money on an investment in your taxable account? Guess what? You didn't lose as much as you think you did. You can use any capital losses to offset capital gains, essentially allowing you to lose money on a pre-tax basis. You can even use $3,000 a year of those losses against ordinary income. The best part is that with wise tax-loss harvesting, you didn't even really lose the money in the long run, but you can still use the loss for tax purposes.

#7 Inheritances

Assuming that, like most people, your estate is smaller than the applicable estate tax exemptions, if you leave assets to your heirs, they enjoy a step up in basis at your death. Essentially, you can leave them money (at least the gains on that money) with pre-tax dollars.

More information here:

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#8 Brand New Nissan Leaf

From here on out in this post, we're stretching a little bit more to call these purchases pre-tax. But in the right situation, they still basically work out the same way. Electric vehicles are an example. Per the terribly named Inflation Reduction Act, from 2023-2032, you can get a credit of up to $7,500 for the purchase of an electric vehicle for personal use in the US if your AGI is less than $300,000 Married Filing Jointly ($150,000 single). That includes lots of doctor families, especially if they're saving a lot for retirement in tax-deferred accounts and HSAs.

Now, if your AGI is $300,000 MFJ in 2025, you're in the 24% tax bracket. The MSRP for a Nissan Leaf is about $30,000. How much tax does someone in the 24% tax bracket pay on $30,000? Almost exactly the $7,500 credit they receive when they buy it. You just bought it with pre-tax dollars. Maybe that wouldn't be the case if you buy a Tesla S Plaid with Ludicrous Mode, but you see what I'm saying.

#9 Your Home

OK, you still can't buy your home with pre-tax dollars, at least not if you pay cash. But imagine that you end up with a high mortgage rate and spend three decades paying it off. How much did you actually spend on that house? Let's say it's a $400,000 house and you bought it with an 8% interest rate and 0% down on a 30-year doctor mortgage. That house is going to cost you $1.066 million. Since $666,000 of that is deductible interest, most of that house was purchased with pre-tax dollars. It's even more if we include some deductible property taxes in that total.

#10 Education

This one is a bit like the electric vehicle thing. You can't actually buy education with pre-tax dollars, but there are so many tax breaks associated with it that, for many people, it would be just the same as buying it with pre-tax dollars. 529s and Coverdell Education Savings Accounts allow all earnings to be used tax-free for education. If you invest early and experience good returns, that could easily be the majority of the funds in the account.

Let me give you an example. A few years ago, our oldest started talking about going to medical school at about the same time our income increased substantially. We started making maximum contributions to her 529 each year. To be fair, we felt like we needed to put that same amount into the other kids' 529s, including the youngest. After a few years and two weeks of college, the oldest was leaning away from med school, and it was pretty clear that we had probably overfunded all of the 529s, so we stopped contributing to them. As you know, markets have done pretty darn well the last couple of years, so our 9-year-old, at the time I write this, has a 529 of $140,000, of which $47,000 is earnings. Even without additional contributions, that aggressively invested account is likely to double before she goes to college. That would end up being $280,000, only $93,000 (33%) of which is contributions.

Given how inexpensive college in Utah is, most of that money is probably going to the grandkids, so it is likely to double three more times before it gets used. Let's say she spends $80,000, and $200,000 is left over. Then, $200,000 becomes $400,000, $800,000, and finally $1.6 million. Only $93,000 of which was contributions. Those grandkids are certainly going to college with money that is almost entirely pre-tax.

In addition, many 529s give you a state tax deduction on contributions, so some of those contributions were always pre-tax from a state perspective.

But wait, there's more. Below a certain income, savings bond interest isn't taxable if used for education. There's also the $2,500 American Opportunity Tax Credit and the Lifetime Learning Tax Credit (again, it's limited for high earners). Tuition payments are also deductible from the estate/gift tax exemption. That means you can give someone $19,000 [2025 — visit our annual numbers page to get the most up-to-date figures] AND pay $60,000 a year in tuition for them without filing a gift tax return or using up any of your exemption. Businesses can pay for some of their employees' education costs, too, with pre-tax dollars (note this is not usually something you can do for your kids with your medical practice).

#11 Childcare

In the same vein as electric vehicles and education costs, it's possible to get enough of a tax credit that it will feel a lot like you are paying for childcare with pre-tax dollars. The Child and Dependent Care Credit is complicated and constantly changing, but for high earners in 2025, it's a 20% credit of the first $3,000 (one kid) or $6,000 (two kids) you spend. OK, it's probably not totally pre-tax dollars for this one for most WCI families, but it's certainly a government-subsidized expense.

#12 State Taxes

Your state income taxes (or sales tax) used to be completely deductible. That changed for the most part with the 2018 Tax Cuts and Jobs Act, due to a new limitation on this deduction that applies to most high earners. However, that $10,000 limitation on deductibility of State and Local Tax (SALT) that includes income, property, and sales taxes has been boosted to as high as $40,000 (through 2030) for some, thanks to the One Big Beautiful Bill Act. My point is that some people still pay their state taxes with pre-tax dollars, and eventually everyone may pay them again with pre-tax dollars.

Note that there's a workaround in many states right now for business owners. My state taxes have been deductible for several years now. The program is usually called something like the elective Pass Thru Entity Tax (PTET), and if you're a business owner, you should definitely find out if your state has one. Basically, your state income taxes can become a business expense, and thus, they can become deductible on your federal income taxes.

More information here:

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#13 Retirement Spending

OK, this one is also a bit of a stretch, but thanks to two effects, much of your retirement spending can also be done on a pre-tax basis.

The first effect, like that discussed for 529s above, is simply that a whole bunch of your retirement savings can be earnings in a tax-free account, like a Roth IRA. Those earnings are never taxed, allowing you to spend the equivalent of pre-tax money on whatever you want after age 59 1/2.

The second effect is simply the usual tax rate arbitrage that people see with their pre-tax accounts. If you contribute to a tax-deferred retirement account when you're in the 35% bracket, 35% of that contribution comes off your tax bill. You might think that gets recaptured when you pull out the money in retirement. And sometimes it does, but usually at a dramatically lower tax rate. If you have no other taxable income, withdrawals from tax-deferred accounts start filling up the tax brackets from the bottom, including the 0% bracket (standard deduction). Saving 35% at contribution time and only paying 0%, 10%, 12%, 22%, etc., at withdrawal time is a winning formula that allows you to spend dollars that can be completely pre-tax and are often somewhat pre-tax.

The higher your marginal tax rate, the more beneficial preferentially spending pre-tax dollars can be.

What do you think? What do you buy pre-tax? Which of the items on this list were a surprise to you? What else did I miss that you can buy pre-tax?