HSA and sole prop

[Possi]

What is the advantage of putting money into a Health Savings Account if you are a sole prop with no employees?

My client has one and while I know where to take the regular Self Employed Health Insurance deduction, I do not know if there is a benefit to the HSA.

Reading TTB, I see that it is considered a fringe benefit with limitations to highly compensated employees.

I wouldn't think this is a "fringe benefit" on Sch C if the only person in the business is the sole proprietor herself. But I don't want to miss a deduction and CERTAINLY do not want to "guess" at anything.

Thanks!
1 tired poss

[BP.]

deduct on line 25 of 1040, from form 8889- ttb 13-29

[Bees Knees]

What is the advantage of putting money into a Health Savings Account if you are a sole prop with no employees?

Benefit of an HSA

Sole prop pays high deductible health insurance at a much lower cost (because it is a high deductible plan). Deducts cost of insurance on line 29, Form 1040. This deduction is not subject to the 7.5% AGI limit for medical expenses on Schedule A.

Sole prop contributes to an HSA and deducts the contribution on line 25, Form 1040. This deduction is not subject to the 7.5% AGI limit for medical expenses on Schedule A.

Earnings in the HSA accumulate tax free, just like an IRA.

When the sole prop incurs a medical expense that is not covered by insurance (because of the high deductible), the sole prop can use money in the HSA to pay for the expense. The money comes out of the HSA tax free, provided it is used to pay for medical expenses.

The net result is the sole prop uses pre-tax money to pay for medical expenses, without having to waste the deduction on Schedule A due to the 7.5% AGI limitation that otherwise applies to medical expenses.

[Possi]

Two fold question and answer

Thanks!

The question was for my client and for my future personal needs.

I'll be looking for insurance later this year when I'm no longer married...

=(

Too much to think about right now, so I appreciate the reply. You really laid it out for me so I can understand why I need that as well...

~possi

[BP.]

Earnings in the HSA accumulate tax free, just like an IRA.

This is a nice feature of the S/E HSA- no use-it-or-lose-it like employee plans.

[Nelstax]

HSA and Sole Prop.

I would like to say that having Health Savings Accounts have helped us tremendously. We have been sole prop. for about 35 years and enrolled as soon as we were able to find a trustee for the accounts. They weren't always easy to find. Years ago, no one understood the laws and banks were not willing to take on the added responsibility (chore).
Previously we were unable to deduct any medical costs and only a small portion of our insurance premiums because we have never itemized. Tax laws over the years have changed some in our favor, thank goodness. I recommend the HSA to all of my small business clients if they are paying for their own medical insurance. I hope this helps.

[Possi]

thanks and welcome!

I would like to say that having Health Savings Accounts have helped us tremendously. We have been sole prop. for about 35 years and enrolled as soon as we were able to find a trustee for the accounts. They weren't always easy to find. Years ago, no one understood the laws and banks were not willing to take on the added responsibility (chore).
Previously we were unable to deduct any medical costs and only a small portion of our insurance premiums because we have never itemized. Tax laws over the years have changed some in our favor, thank goodness. I recommend the HSA to all of my small business clients if they are paying for their own medical insurance. I hope this helps.

Thanks for the insight, as I will be making these decisions this year.

Welcome to the board!

~possi aka donna

[Nelstax]

Thanks. I wanted to say to check into the rules before choosing a HSA trustee. I am in the process of transferring my account because of the difficulty I had in a long distance bank account. Besides that, there were rules in place that limited the amounts of checks written for medical expenses to 3 per month, which in some cases, are not enough.