Use your health insurance to save money on taxes

Proper planning with respect to how you structure and use your health insurance can really pay off when the tax man comes. I’m not a registered tax planner, CPA, etc., but the next few items should be discussed with your tax preparer.

H.S.A Plans: A prior blog post from August 19^th described what they are and how they work. Amounts (up to certain limits) contributed to your H.S.A account can be deducted dollar for dollar from your top line income on form 1040. In 2008 it came out on the first page on line 25. That’s right, the money is yours to keep (it’s not use it or lose it) and spend on any qualifying health expenses you or your family incur now or in the future, and it is tax free. If you know you are going to have health expenses, you might as well pay for them with your tax free dollars. Keep in mind that you must contribute to your H.S.A account BEFORE you incur a qualifying health related expense however.

Self-employed deduction: This is a no brainer for self-employed people or people with a small business. Health insurance premiums for you and your family can be taken as a business expense. In 2008 on form 1040 it came out on line 29. In addition, if you have an H.S.A plan, not only can you take the top line deduction from your income for amounts contributed to your H.S.A account, but your monthly H.S.A health insurance premiums can also be taken as a business expense.

Health Expenses greater than 7.5% of your AGI: If your total health insurance expenses for you and your family are greater than 7.5% of your Adjusted Gross Income, amounts spent OVER that 7.5% can be taken as a deduction. What qualifies? Much more than you think! Please refer to the IRS site http://www.irs.gov/publications/p502/ar02.html for the full list. Many people just don’t keep receipts, and don’t know that money spent on a whole host of qualifying health expenses could have been taken as a legitimate deduction. If you had a major health event, had a new baby, or other combined health expenses which could put you over the 7.5% threshold, make sure you look into this.