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Understanding Tax Terms: Health Savings Accounts (HSA)

10/7/2019

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If Benjamin Franklin were alive today, his famous quote "Nothing is certain, except death and taxes." might include a third item - paying medical expenses. Medical expenses, in one form or another, are unavoidable. Fortunately a health savings account (HSA) is a great way to cut your spending on medical expenses.

A major tax break

If you have a high deductible health insurance plan (deductible of at least $1,350 for an individual or $2,700 for a family), you can add an HSA to pay for medical expenses with pre-tax income. Contributions to an HSA can be made via payroll deduction or directly to the account and deducted as an adjustment on your tax return. This approach effectively reduces your medical bills by as much as 37 percent!

Tips to maximize your HSA
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Once your HSA is established, here are three simple ideas you can use to take full advantage of this great tax-savings vehicle:
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  • Maximize your HSA contributions every year. Set an annual goal to contribute the full amount allowable by the IRS into your HSA. Unlike other funds, HSA contributions do not have to be spent each year. Unused balances can remain in the account, giving you a great way to build up a nice emergency fund over the years. The 2019 total contribution limits are $3,500 for single taxpayers and $7,000 for a family (add $1,000 if you are 55 or older). You have until April 15 of the next year to make contributions, but when figuring out how much to contribute, remember to include contributions by your employer in your total.
 
  • Pay for all medical expenses with your HSA. Typically you can pay for medical expenses directly from your HSA account via a debit card. If not, track all payments you make for medical expenses and take matching distributions from your HSA. If you don't have enough in your HSA to cover an expense, make a contribution to your HSA first and then pay the bill. Keep ALL your medical bills and receipts to prove that the distributions are for qualified medical expenses.
 
  • Prioritize HSA contributions. HSA contributions are tax-deductible and distributions are tax-free (for qualified medical expenses). Traditional IRA distributions, on the other hand, are taxable.

Knowing you will always have medical expenses, prioritize your HSA contributions to take advantage of its additional tax benefits.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
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Phone: (630) 320-3720

Monarch Accounting Group Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527-7836
Email: Info@MonarchAccountingGroup.com


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  • Home
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