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  Tax-Saving Health Care Ideas  

Here are some ways to deduct medical and dental expenses, to lower your income tax and social security tax.

1.   About 30% - 40% of employers offer HSAs (Health Savings Accounts) to their employees.  An HSA can also be set up by any individual at most financial institutions.  It lets you deduct nearly all your medical and dental expenses on your federal income tax and on many state tax returns, so you'll save the same percentage of money as your tax bracket.  More savings comes from the fact that an HSA is always used with high-deductible health insurance, which of course costs less.  You could also save money by watching your health expenditures more closely instead of relying on insurance, but be careful not to scrimp at the expense of your health.

Your HSA will of course earn interest.  An HSA is somewhat similar to an IRA in that you can use it for retirement savings, but an HSA is better because it also lets you make withdrawals for medical expenses completely tax-free.  Like you can with an IRA, you can withdraw money for other purposes if you pay a 10% penalty and pay income tax on it.

If you're generally healthy and have few medical expenses, an HSA is probably a good idea for you.  If your health insurance is provided by your employer, switching to high-deductible insurance will save him a lot of money, so employers should be willing to contribute most of those savings to your HSA.

2.   A cafeteria plan allows an employee to choose from various benefits on a pre-tax basis.  You can opt to use this plan to pay for medical expenses, children’s day care expenses, or insurance that may cover health care, accidents, disability, vision, dental care and group term life needs.  However you must commit to the plan before the calendar year begins, and you can only alter your choice if there's a change in marital status, number of dependents, or spouse’s employment. Any money that is unused by the end of the year is kept by your employer.

3.   A FSA (Flexible Spending Arrangement) can be spent on expenses for health care, child care, summer day camps, or the care of an aging parent (but not health insurance).  It's available from many employers and cuts taxes in the same amount as an HSA.  A FSA doesn't require high-deductible insurance, but on the other hand you must use it up by the end of the year or lose what's left.  A FSA is great for those people who have high medical expenses.  It's underused by the public because it doesn't generate a big profit for benefit administration companies.

4.   If you start to incur high medical costs, remember that you can deduct medical bills exceeding 7.5% of your Adjusted Gross Income on your tax return.

Most companies are staffed with a benefits manager who can give you more information about your company's health plans.

(Next Gem: Shop Around for Health Insurance)

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