Home Business Tax Savings

Home Business Tax Savings About Home Business Tax Savings Tax Reduction Products Home Based Business Contact Home Business Tax Savings  
Home Based Business
Tax Reduction

If you are self-employed and live in the United States or Canada, you can probably reduce your taxes with a small business run with an honest expectation of profit and where your expenses are ordinary, necessary, and reasonable for that business. It's that simple.
Tax Links Tax Savings

How to Save On Taxes With A Health Savings Account

You need to do some research on it and visit a proper tax consultant, who can guide you on how to save on taxes with a health savings account. You just need to know a few common facts that can help you save a substantial amount of money.

If you are covered by a high-deductible health insurance policy, you can set up a health savings account. The amount that you remit on this account will guide you on how to save on taxes. The amount is deducted before calculating your gross income. Thus, you do not have to claim itemized deductions Schedule A of Form 1040. If your employer makes the contribution to your health savings account, it is not taxable to you.

You need to strategize on how to save on taxes. For the year 2006, for example, in case of individual coverage, a high-deductible policy is supposed to have an annual deductible of a minimum of $1,050. In case of family coverage, it must have an annual deductible of a minimum of $2,100. The yearly out-of-pocket expenditure is limited to $5,250 (individual) or $10,500 (family). If you want to use the distributions from your health insurance policy to pay medical insurance of your own, your spouse’s and your dependent’s, the amount is not taxable. Medical expenses mean optical care, dental care, expenditure on hospitals, physicians, drugs, and traditional medical expenses.

You can deduct the medical expenses from Schedule A of Form 1040, even if you do not pay your medical expense from your health savings account. If you are married and both of you have health insurance, special rules apply to both of you. If only one of the spouses has a family health insurance, both of them are considered to have family coverage. If both of them have family health insurance but under separate plans, the law believes that each spouse has a family policy with the lower deductible.

Health Savings Accounts Mean Big Savings
by Stephen L. Nelson, CPA

Health Savings Accounts Can Mean Big Savings for Consumers
Concerned about the high cost of healthcare? Worried that your insurance doesn't cover all your costs? Fortunately, a partial solution may be just around the corner. Since January 2004, taxpayers have had a tax savings tool called Health Savings Accounts, or HSAs. These HSAs may solve many of your healthcare cost problems.

How an HSA Works
In a nutshell, HSAs work like this. You buy a specific type of major medical, or catastrophic coverage, insurance called a High Deductible Health Plan. (This special HSA-compatible insurance is also known by the acronym HDHP.) Then, you annually contribute up to roughly $5,100 for a family and up to $2,600 for an individual--to a special health savings account.

Mote that slightly higher deductions are available to taxpayers over the age of 55. Also, annual deductions are indexed for inflation.

How You Save Taxes with HSAs

HSAs work because you get a tax deduction for the money you contribute to the health savings account. However, as long you spend the money in the account for eligible healthcare expenses--pretty much anything reasonable--you aren't taxed when you withdraw the money. Note that HSAs deductions are not limited by taxpayer incomes.

In effect, the HSA makes all or most of your uncovered healthcare expenses fully deductible. This is a big deal because for most people, healthcare expenses are not deductible.

Just to put the value of an HSA into perspective, a family can save from $500 to as much as $1750 annually in income taxes by using one of these accounts. The final savings, predictably, depend on family income and the state where the family lives.

One other thing. Don't confuse HSAs with the old style Flexible Spending Accounts, or FSAs. With FSAs, you lost the money you didn't spend by the end of the year. With HSAs, you don't lose the money. The unused balance just carries forward to the next year.

Aren't Medical Expenses a Tax Deduction Anyway?
No, not really. For most people medical expenses are not a tax deduction. Here's why. Healthcare expenses do count as an itemized deduction for people who don't use the standard deduction. However, only the portions of one's healthcare costs that exceed 7.5% of adjusted gross income get deducted. That means that most people never get to use their healthcare costs as tax deductions because their healthcare costs don't cross the 7.5% threshold.

Another Benefit: HSAs May Also Save Premiums
HSAs sometimes produce another economic benefit. The HDHP insurance itself may save people money because they buy less insurance. This is especially true for people who aren't already using major medical insurance.

How to Set Up a Health Savings Account

HSA accounts aren't difficult to set up. Essentially, you do just two things. (1) Get medical insurance that qualifies as an HDHP, and (2) Open an HSA account with a bank that offers HSAs. Your current medical insurance provider is a good place to start your search for HDHP insurance. You can also check with your state's Blue Cross or Blue Shield insurer.

Three Warnings about HSAs

For what it's worth, I am now using an HSA myself. (I got my HDHP from Premera Blue Cross and use an HSA account from HSA Bank.) But let me also share three caveats: First, obviously, you never want to cancel one insurance policy until you're sure you have a replacement policy. Second, you do need to be careful about the fees associated with the HSA "bank account," so shop around. Third, if you withdraw money from an HSA for something other than a valid medical expense, the withdrawal is taxable and subject to a 10% penalty.

Bellevue-Redmond CPA Stephen L. Nelson is the author of both Quicken for Dummies and QuickBooks for Dummies and an adjunct tax professor for Golden Gate University's graduate tax school.

Tax Reduction Strategies
"It's How Much You Keep That Counts! Not How Much You Make."

Read More
THE ULTIMATE Tax-Reduction System For Small and Home Based Businesses!

This easy-to-use System was developed by an MBA and a CPA, and contains SPECIAL ENDORSEMENTS by a Certified Financial Planner and a Registered Investment Advisor, each with more than 20 years experience in their fields.

Get the Biggest Refund you deserve
Maximize your Tax Deductions
with TurboTax

Copyright ® 2008 TaxSaverOnline.com
Home     About Us     Home Business    Tax Savings     Newsletter    Tax Articles