When it comes to tax planning around your healthcare, a health savings account or HSA is going to be a key part you'll want to consider.

What Is a Health Savings Account (HSA)?

An HSA is essentially a savings account that allows you to contribute money to it, pre-tax, to pay for qualified medical expenses. However, unlike a flexible spending account (FSA) it is not a use it or lose it, funds roll over year to year.

What Are the Benefits of an HSA?

An HSA is a super powerful tool because of these benefits:

• You get a tax deduction for the funds you contribute into an HSA.
• Withdrawals are tax free if used for qualified medical expenses. 
• Interest or earnings with-in the HSA are NOT taxed.
• Traditionally in order to get a tax benefit from out of pocket health costs you would need to itemize deductions and have a pretty large amount of costs. However, with an HSA you get a tax deduction on your contributions so its a great way to get the benefit without having to hit the high costs.
• This is not a use it or lose it account. The contributions remain in the account until you use them and you can invest and grow that account tax free. Many people choose to self-direct their HSA account.
• You can invest funds within an HSA in things like mutual funds, stocks, rental properties, other assets, etc. It does not have to just grow at a small savings interest rate.
• An HSA is "portable" which just means if you change employers it does not matter, the account sticks with you.

It is a rare tool that the IRS lets you "win" on both ends, the contribution and the withdrawal. For this reason we recommend everyone (business owner or not) be maxing out their HSA contributions, if they qualify and can afford it.

What Are The 2024 HSA Contribution Limits?

• Self Only: $4,150
• Family: $8,300
• Age 55 or Older? Additional $1,000 Allowed

How Am I Eligible to Contribute To An HSA?

In order to qualify to contribute to an HSA plan you must meet a few qualifications:

1. Covered by a high deductible health insurance plan (HDHP)
   • Deductible of at least $1,600 (Single) or $3,200 (Family) for 2024
2. Not covered by any other plan that is not a HDHP
3. Not eligible for Medicare
4. Not claimed as a dependent on someone else's return

Should I Contribute To My HSA Via My Business or Personally?

Once we talk to someone that understands they definitely want to implement an HSA, this is the next question. If you are a business owner we recommend simply funding your HSA using personal funds but be sure to document it and let your accountant know so they can record it properly on your personal return.

If you want to use business funds for it, you can, simply mark it as a draw and then take the HSA deduction on your personal return.

If you have non-owner employees that are funding an HSA and/or you are contributing to it, you will want to ensure you are running this through payroll.

What Else Should I Consider When Thinking About An HSA?

• One of the only tools we can get a deduction going in and we can withdrawal tax free. Even if you are healthy and do not think you’ll use the funds, some day you will. Take advantage of this great opportunity in the tax code!
• Many people look at an HSA as a savings vehicle because there is no tax on the interest or gains earned within it and you know at some point you'll need funds for medical expenses.
• There are a lot of things that would qualify as an allowed medical cost including: prescription meds, co-pays, over the counter meds, first aid supplies, home health care items and so much more.
  • If you really want to get an idea of what may qualify, check out the HSA Store which has over 4,000+ HSA eligible products. Use that link above and get $20 off your first order of $200+!
  • Here is another HSA eligibility list.
• If you withdrawal money from an HSA for non medical expenses you'll face a 20% penalty plus taxes so we would not recommend this but know that it is an available option.
  • Note: If over age 59 and a half there is the possibility to withdrawn for non medical expenses and simply pay taxes on it, avoiding the penalty.