How to Save Taxes on Your Health Expenses

Depositphotos_2506554_webAs a preneed insurance agent you are familiar with the insurance products you sell.

Are you also familiar with health insurance options and how you can save taxes while paying your medical expenses?

There are far too many options to cover any in sufficient detail here.  However, hopefully the information below will help you get thinking about your health insurance and medical costs with taxes in mind.

Small Business Health Care Tax Credit – If you have fewer than 25 full-time equivalent employees, pay an average wage of less than $50,000 a year and pay at least half of the employee health insurance premiums you may be eligible for a tax credit.  A credit reduces your taxes dollar for dollar.  For example, a $100 deduction potentially saves $30 in taxes (assuming a 25% federal and 5% state rate).  The same $100 spent on insurance qualifying for the small business health care credit potentially yields a 35% credit ($35 tax savings) and a deduction for the difference of $65 ($19 tax savings using a 30% federal and state rate) for total potential tax savings of $54.  The net cost of $100 of insurance becomes $46!  (The actual net cost will vary due to limitations and effective tax rates.)

Health Savings Accounts (HSAs) – Health Savings Accounts have been gaining in popularity.  An HSA coupled with a qualifying high-deductible health plan allows for greater control of health costs.  A high-deductible health plan has lower premiums and HSA contributions are tax free.  HSA funds can be used to pay qualified medical costs not covered by insurance and unused HSA funds carry forward year after year.  Therefore, a $100 contribution potentially saves $30 in taxes for a net cost of $70 (assuming a 25% federal and 5% state rate).  Contributions made via a payroll reduction arrangement may also save on FICA and Medicare taxes.  An individual can contribute up to $3,250 per year and a family can contribute up to $6,450 per year for 2013.

If you are interested in exploring the above or other tax favored plans additional information can be found in the IRS Publication on Health Savings Accounts and Other Tax-Favored Health Plans, your local employee benefits group or your local CPA.

Article written by Richard R. Dahl, a CPA and Senior Tax Manager with Security National Life Insurance.  The content of this article is not intended as tax advice and cannot be used for avoiding tax penalties or promoting or recommending any transaction.  Individual circumstances should be discussed with a qualified tax professional. 

 

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