How To Get A Tax Deduction From Investing In Your Health

How To Get A Tax Deduction From Investing In Your HealthAs tax season rolls around, virtually everyone is looking for ways to minimize their tax bill. When the Tax Cuts and Jobs Act passed in 2017, many personal itemized deductions were eliminated, but there are still several ways to minimize taxes.

One such effective strategy is to invest in your health with a health savings account (HSA). An HSA is not only a great way to save on healthcare expenses, but it also provides many tax advantages.

So, what exactly is an HSA and how can it provide you some relief come tax time?

What is a Health Savings Account (HSA)?

A health savings account is a way to save for medical expenses and reduce your taxable income. To qualify for an HSA, you must be enrolled in a high-deductible health insurance plan. You can decide how much to contribute to your HSA, but you cannot exceed government-mandated maximums. The funds can be used for eligible medical expenses, such as copays, prescriptions, lab work, dental care, and more.

What are the Tax Advantages of a Health Savings Account?

With an HSA, you can write-off the money you contribute for the year. HSA contributions are pre-tax (if your account is through your employer) or tax-deductible (if you opened your own account). For the 2019 tax year, the contribution limits are $3,500 for individuals, $7,000 for families, plus an extra $1,000 if you’re age 55 or older. Taxpayers have until the annual filing deadline to make contributions for the previous tax year, so maxing out your HSA can provide you a last-minute tax break.

A health savings account also offers tax-free withdrawals (as long as the money is being used for qualified medical expenses), account earnings grow tax-free, and contributions made to an HSA on a pretax basis are not subject to Social Security and Medicare taxes (FICA taxes).

Related article: Can I Get an Extension on my Tax Deadline?

What Additional Benefits Does a Health Savings Account Offer?

Unlike a flexible spending account (FSA), the balance on an HSA rolls over from year to year. It can also serve as an extra source of retirement savings. Once you’re 65 years old, HSA funds can be used for any purpose; you just have to pay income tax on non-eligible expenses. Another benefit is that HSA money can be invested in mutual funds, stocks, or other investment tools, providing another source of retirement income.

Related article: How Marcia L. Campbell, CPA Can Help You Retire by the End of 2020

Finding effective ways to minimize taxes can be a challenge. A health savings account offers several tax advantages and can also provide additional funds for retirement. If you’d like to learn more about how you may benefit from an HSA, or you have additional tax questions, Marcia L. Campbell, CPA can help. At Marcia L. Campbell, CPA, we work closely with our clients to make sure the best decisions are being made in regard to taxes. Contact us at 1-951-686-3608 to learn more.

 

 

 

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