3 Fitness Tax Breaks to Save You Money
Money Girl gives you tricks to cut your taxes while improving your health and getting fit.
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How Much Is the Medical Tax Deduction?
For 2013, the medical deduction applies to the amount of allowable expenses that exceed 10% of your adjusted gross income (AGI). For example, let’s say your AGI is $50,000 and your medical expenses for the tax year are $6,000. You could deduct the amount over $5,000, or $1,000. If your medical expenses are less than 10% of your income, then you can’t deduct any of them.
If you or your spouse is 65 or older, you’re eligible for a bigger tax break. You can deduct medical expenses that exceed 7.5% of your adjusted gross income through 2016.
Savings Tip #2: Use a Medical Savings Account
Besides claiming medical deductions, you can also get a tax break for using different kinds of medical savings accounts. Health savings accounts (HSAs) and flexible savings arrangements (FSAs) are the most popular types.
A health savings account allows you to save for future medical expenses on a tax-free basis. In other words, you don’t have to pay tax on the contributions you make. You (or an employer) put money in an HSA and can spend it on medical expenses that aren’t covered by your health insurance, like your deductible and co-payments.
But there’s a catch. You can only contribute to an HSA when you have a certain kind of health insurance policy called a high-deductible health plan (HDHP). These policies have lower premiums because they come with a higher-than-normal deductible (the amount you have to pay before your benefits begin). You qualify for an HSA whether you pay for a high deductible plan on your own or get it through work.
A flexible spending arrangement allows you to be reimbursed for medical expenses on a tax-free basis. They're usually funded through contributions made from your salary or from an employer that are excluded from your gross income.
Unlike an HSA, an FSA can only be established by an employer. This restriction excludes most self-employed individuals from being eligible for an FSA. Another major difference beween them is that FSAs are "use-it-or-lose-it" plans. You must empty your FSA every year, while funds in an HSA can roll over from year to year and accumulate indefinitely.
For more details on these medical savings accounts see IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
Savings Tip #3: Use Workplace Health Incentives
Many employers understand that healthy workers are good for the company's bottom line. It's not uncommon for large organizations to offer financial incentives for losing weight, walking a certain number of miles, completing online health counseling, or using an in-house gym. Typical rewards include gift cards, addtional employer contributions to your HSA, or even extra vacation time.
If you aren't taking advantage of medical tax deductions, a medical savings account, or health incentives at work, find out what options are available. If you aren't eligible for any health perks, remember that getting fit has its own rewards. Being healthier can help you accomplish more at work and save money by staying out of the doctor's office and pharmacy in the first place.