Are you taking advantage of money-saving fitness and health tax breaks? Money Girl covers seven tips to take charge of your health and wealth so you can feel good, look good, and live the lifestyle you want.
Another benefit of an HSA is that you don’t have to take any distributions each year; you can let the savings accumulate indefinitely without penalty.
Find out if your health insurance qualifies as a high deductible plan. If so, open up an HSA and begin funding it as soon as possible so you can get a tax break on your next medical expense.
Savings Tip #2: Use a Health Flexible Savings Arrangement (FSA)
Flexible spending arrangements have some similarities to HSAs, but are only offered by employers. An FSA allows you or your employer to make contributions on a pre-tax basis, usually through payroll deductions. For 2015, eligible employees can contribute up to $2,550.
As long as you spend FSA funds on qualified medical expenses, they’re never taxed. So, just like with an HSA, you save an amount equal to the income taxes you would have paid on the money.
But unlike an HSA, an FSA is a “use-it-or-lose-it” plan. That means you generally must empty the account every year or only carry over a small amount, while funds in an HSA can roll over from year to year without penalty.
To learn more about medical savings accounts, see IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
Savings Tip #3: Claim Medical Tax Deductions
There are many qualified medical expenses that you can pay for using an HSA or an FSA. But what if you don’t have one of those accounts—or you have expenses that exceed your balance?
Well, the IRS still gives you the opportunity to get a break by claiming medical expenses as deductions on your tax return. However, the catch is that you must itemize deductions, instead of taking the standard deduction for your tax filing status.
To know whether to itemize or not, find out if your total deductions exceed the standard deduction, otherwise you won’t save money. For instance, for 2015, the standard deduction is $6,300 for singles and $12,600 for joint filers. If you’re single and have more than $6,300 in tax deductions to claim, make sure you itemize them on Schedule A, instead of claiming the standard amount.
When you itemize, you can claim medical expenses paid for yourself, your spouse, and dependents, unless they’re already excluded from your taxable income, paid for using your HSA or FSA, or were reimbursed to you. In other words, you can’t double dip and get a tax deduction twice.
Another important point with medical deductions is that you can only claim amounts that exceed 10% of your adjusted gross income. 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.
There’s a long list of expenses that qualify for a tax deduction, and some of them may surprise you, such as acupuncture, weight-loss programs, and transportation. You can even claim the cost of your health insurance premiums if you pay them as an individual—but not if they’re paid on a pre-tax basis from your paycheck at work.
I encourage your to take a look at the full list of deductible costs found on IRS Publication 502, Medical and Dental Expenses. They don’t include expenses meant to improve your general well-being or appearance, like a gym membership, vitamins, cosmetic surgery, or a well-deserved beach vacation. But there are probably many medical expenses that you might not realize are deductible.
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