Don't forget to declare your HSA contributions on your taxes.
I did my taxes last weekend and taking the time to input my HSA contributions lowered the amount I owed the federal government by hundreds of dollars.
I hate doing my taxes. It’s one of those things in life that can’t be avoided. But it’s also something I want to spend as little time on as possible.
Unlike the previous couple years where I paid a couple hundred dollars to have HR&R block prepare my taxes, I instead decided to pay TurboTax a couple hundred dollars to have the privilege of filing my taxes from the comfort of my own home.
I’m sure there is a cheaper way to do my taxes without making a major mistakes that will result in me running afoul of the IRS. But that’s for another post.
I input my tax information into TurboTax as quickly as I could because, as I stated previously, I hate doing my taxes. And because I was moving so quickly, I almost skipped over the section where I was prompted to enter the contributions I made to my Health Savings Account last year.
I’m glad I didn’t skip the section in my hurry. Filling out my HSA contributions saved me several hundred dollars in federal taxes.
In 2021 when I switched my employer-backed healthcare plan from a preferred provider organization plan, PPO for short, to a high-deductible health insurance plan, or a HDHP, I wasn’t thinking about saving money on my taxes.
😵💫 | Wondering what I mean when I say PPO or HDHP? I found this article helpful.
I primarily made the switch for two reasons: I wanted to save money by lowering the healthcare contributions taken out of my check and I liked the flexibility of having the control of my high-deductible health insurance plan’s Health Savings Account.
I knew that an HSA would give me more flexibility in how I spent money on healthcare. I wasn’t aware of the tax and investment benefits my HSA was providing.
In this newsletter, Evan Invests, I explore the world of investing from the perspective of the everyday investor by making small investments every month. Follow along with me as I look to grow my wealth through wise money management and making investments in cryptocurrency, index funds, stocks and more.
But before continuing to sing the praises of the HSA, let’s take a quick look at how my portfolio has been performing in the past week.
My Portfolio Holdings as of 2/17/23
Apple stock
Rocket Companies stock
Bitcoin
Fidelity 500 Index Fund
Invesco International Small-Mid Company Fund Class R6
Vanguard High Dividend Yield ETF
Vanguard International Dividend Appreciation Index Fund Admiral Shares
Vanguard Mid-Cap Growth Index Fund Admiral Shares
Frankly, I didn’t take the time to read up on how the overall markets have been doing (and honestly, how investors have been feeling) in the past week. But I can tell you that none of my investments moved very much in price.
Well, with exception of my Bitcoin. But when has Bitcoin not moved wildly up and down in price? Not since I bought into it five months ago.
Back to HSAs.
Here a few of the tax and investing benefits of owning an HSA that I didn’t know about before I began this investing journey and took a closer look at my finances. Hat Tip to Investopedia.
Employer and individual contributions by payroll deduction to an HSA are excluded from the employee’s taxable income.
Distributions from an HSA are tax free, provided that the funds are used for qualified medical expenses as outlined by the IRS.
You can also use the money in your HSA to invest in stocks and other securities, potentially allowing for higher returns over time.
If you remember anything from this post, remember this. Health Savings Accounts are great if you qualify for one. And if you do have one, don’t forget to declare your contributions to it when you file your taxes.
I’ll report back next week.
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