So, you’re a parent and your child needs braces. How do you go about getting a discount on the money you use to pay for this expense? Let’s use an example of a taxpayer with an effective tax rate of 20% and braces for their child costs $6,000, using tax free money would mean a savings of $1,200. So how exactly do we do that?
Nowadays, it seems like everyone is concerned about the costs of health care. With the rising cost of health care, many employers have had to implement plans with more out of pocket costs for their employees. The challenge lies in how to make those out of pocket costs tax deductible. For taxpayers who itemize deductions, medical expenses must exceed 10% of “adjusted gross income” in order to receive a tax deduction (7 ½ % if over 65). Thus, for a taxpayer making $50,000 per year their expenses would have to exceed $5,000 to be deductible. For many taxpayers, this limitation makes for medical expenses that aren’t deducted on their tax return. This is where Health Savings Accounts come in. A Health Savings Account (“HSA”) is a great way to pay for medical expenses using tax free dollars. Taxpayers have the ability to make contributions to a Health Savings Account of up to $6,750 in 2017 to be used for qualified medical expenses. The plans work like a bank account that is funded through direct deductions from your paycheck. Most plans come with a debit card ready to use to make payments at your doctor’s office for co-pays. They can even be used for a variety of medical expenses such as prescriptions and some over the counter medications at your local pharmacy as well as dental and orthodontic expenses. This mean you can use HSA funds to pay for your child’s braces. Best of all is the money is portable and there are no use it or lose it provisions, so if you change jobs or don’t use all the funds they will still carry forward!
Written by Dana Arthur, CPA