At our “3 Must-Know Year-End Tax Strategies” event last month, Phillip Focaracci (CPA, SBS Accounting & Advisors), explained how health savings accounts, or HSAs, can be a big winner for small businesses and their owners. Not only are they a powerful way to save for healthcare expenditures, but they also are a one-of-a-kind tool for tax savings.
First, you can contribute to your HSA with pre-tax dollars, reducing your taxable income. This immediately lowers your current tax bill. Great, right? But we’re just getting started.
Second, funds you contribute to your HSA grows tax-deferred. So, you won’t owe taxes on investment earnings until you withdraw the funds. This can lead to significant long-term savings. At the risk of sounding like an infomercial, “Wait, there’s more!”
When you withdraw money from your HSA to pay for eligible medical expenses, the withdrawals are tax-free. This provides a substantial tax break for out-of-pocket healthcare costs.
Beyond the tax benefits, your HSA stays with you even if you change jobs or retire. And, many HSAs allow you to invest your contributions, potentially growing your savings over time.
For all the great aspects of HSAs, they can be complex. You’ll also be penalized if you withdraw funds for non-medical expenses before age 65.
If you have questions about the tax implications of setting up an HSA plan for you or your employees, we’d love to talk with you. Contact us at info@sbsaccountants.com or 770-284-5537 today for a consultation.