We hope for the best, but need to plan for the worst. Whether you’re feeling well and healthy now or have a few ongoing concerns, knowing how to navigate your medical expenses correctly can help you keep as much money as possible when you file your tax return. Reviewing the latest tax laws and understanding your options for account contributions and deductions will be a key part of saving tax dollars as you work through those bills—and your own road to recovery.
Consider Making Strategic Contributions
Running the numbers on two different types of accounts might give you some ideas about how to maximize your earnings each year. For example, contributing to a health savings account (HSA) often helps reduce your tax liability. If you have an HSA for paying your medical expenses, meeting the total contribution limit during the year can help safeguard funds in a smart way.
Taxpayers should also consider making contributions to their flexible savings account (FSA). These accounts differ because they rely on your employer to set them up, but once in place, they can be another useful tool for lowering your tax responsibility. Just make sure you utilize the funds in your FSA before the end of the year, as these funds won’t roll over on January 1.
Review Your Existing Health Coverage
Whether you have an FSA, an HSA, or neither, it’s incredibly important to review your health insurance policy each year. A lower deductible can help you reduce your overall household expenses in the case of an emergency. Not to mention, a lower premium will help you keep more money in your pocket from month to month.
Taking a little time to talk with your company’s HR department—or an independent health insurance advisor—can be a great strategy for streamlining your entire budget year over year. In some ways, you can think of these professionals as an extension of your financial planning and tax planning team. Staying proactive about your income and expenses will set you up for success come tax season!
Don’t Forget About Possible Deductions
Working with an experienced CPA or accounting firm can help you make sure you’re claiming all of your relevant deductions. For high medical bills, paying close attention to your itemized deductions may be one helpful option. It just depends on your adjusted gross income and the sum of your annual medical expenses. Talking with a tax professional can help you determine whether to take the standard deduction or work through an itemized tax return.
Moreover, you’ll want to speak with a tax planner if you’re self-employed, as your health insurance premiums should be applied to your deductions. Your company will need to show an annual profit, though. Then you can use the above-line deduction to lower that sum total of your taxable income. This can be tricky to process on your own, so partnering up with a great accounting firm will help you find the best course of action.
Your medical expenses may be high, but there are concrete ways to help mitigate those costs. Talking with your local CPA firm can help you develop the right tax plan to get you the most savings as you manage those bills. The team at NSO and Company is here to help Give us a call at (317) 588-3131 so we can start reviewing your options!