Friday, April 08, 2005

The (Often) Overlooked Tax Deduction

Health Savings Accounts are helping individuals save thousands of dollars on their income taxes. These tax-favored accounts, which have only been available since January of 2004, can be opened by anyone with a qualifying HDHP (high-deductible health insurance plan). Once you open an account, you can place tax-deductible contributions into it, which can then be used later to pay medical expenses. Any money not used grows tax-deferred, like an IRA.

HSAs offer many tax advantages over traditional health insurance arrangements.

1) Reduce your federal income taxes. Regardless of your income level or how your income was earned, any money you deposit into your Health Savings Account is considered an “above-the-line” deduction, giving you a 100% write-off against adjusted gross income.

2) In addition the deducting the loss fund contribution, premiums paid for the HDHP are also deductible.

3) Reduce your state income taxes.

4) Tax-deferred growth. Like funds in an IRA, the money in your account grows free from federal taxes.

5) Pay for dental expenses with pre-tax dollars.

6) Pay for vision care with pre-tax dollars.

7) Pay for alternative care with pre-tax dollars, including chiropractic, acupuncture, homeopathy, herbal medicine, or any number of other so-called alternative treatments.

8) Pay for aspirin, bandages, cold medicine, and other household medical expenses with pre-tax dollars. A list of eligible expenses is through Internal Revenue Service publication 502.

9) Pay Medicare expenses with pre-tax dollars, including Medicare premiums, deductibles, copays, and coinsurance.

10) Pay for long-term care insurance with pre-tax dollars.

A Health Savings Account (HSA) enables anyone with a qualifying high-deductible health insurance plan to shelter up to $2650 ($5,250 for families) from federal income taxes. Individuals age 55 or older have an additional $600 in “catch up” contributions. By reducing your adjustable gross income HSAs can reduce your income taxes in at least 10 ways

Bob Vineyard, CLU
(Decided to go easy on you today. The Professor will return, without Mary Ann I am told, next week. I now return you to your regular programming).
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