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Reduce Your Medical Expenses: Tax smarts that make a difference
Medical expenses are on the rise. According to the Milliman Medical Index, the average family of four on an employer-sponsored plan will spend $28,000 on healthcare in 2018 – a $1,000 increase from 2017. Below are some ways you can save tax dollars when paying those medical bills:
- Contribute to a Health Savings Account (HSA). If you have a high deductible health plan, you can open an HSA account to pay your medical bills. If your health insurance deductible is $1,350 ($2,700 for family) or more, you can make contributions to an HSA to reduce your taxable income. The HSA contribution limit is $3,450 for 2018 ($6,900 for family).
- Contribute to a Flexible Savings Account (FSA). Unlike an HSA, an FSA has to be set up by your employer. Like an HSA, you and your employer can make pre-tax payroll contributions to the account to cover qualified medical expenses. One benefit of an FSA is your total annual election amount is available to you on Jan. 1. On the flip side, if you don’t use your FSA dollars by year-end, you lose the funds.
- Deduct your self-employed health insurance premiums. If you are self-employed, you can deduct amounts paid for health insurance premiums for you and your family. To be eligible to make the deduction, your self-employed business needs to show a profit for the tax year. This is an above-the-line deduction, so it can reduce your taxable income even if you are claiming the standard deduction.
- Deduct medical expenses as an itemized deduction. For 2018 the IRS will allow you to include medical expenses that exceed 7.5 percent of your adjusted gross income (AGI) as an itemized deduction. For example, using the US Census Bureau’s average household income of $60,000, any medical expenses above $4,500 may be deducted. If you are not taking the standard deduction, these medical expenses can be used to reduce your income.
- Obtain qualified health coverage. As a reminder, the individual shared responsibility mandate is still in place for 2018. If you don’t have qualified health coverage for any month of the year, you could pay a hefty fee when you file your taxes.
As always, feel free to pass this Tip along to friends, and reach out if you need help with your personal tax and finance situation.
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