good morning. This is Medora Lee. This is the Sunday tax edition of Daily Money.
Every Sunday between now and April 15th, we'll bring you updates and newsworthy updates from the 2024 tax season.
Today, we'll talk about how to use spending on health care and education to save tax.
medical expenditure
There are two types of accounts you can put money into to pay for your health needs: Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). These accounts are funded with pre-tax funds up to a certain limit, and withdrawals that qualify to pay for medical expenses are tax-free.
HSAs are more flexible because you can invest your money to grow and unused funds can be rolled over indefinitely. However, you can only use your HSA if you are enrolled in a high-deductible health plan. His HSA contribution limits for 2023 are $3,850 for individuals and $7,750 for families, but participants age 55 and older can contribute an additional $1,000. That means an elderly couple could contribute $8,750 before taxes.
An FSA is a use it or lose it account. Generally, unless your employer makes an exception, he has one year to spend all of the money in the account on eligible medical expenses, or he loses the money. The good news is that the list of things you can spend money on has grown over the years to include everyday items like Tylenol, sunscreen, menstrual care, contact lenses and glasses, massage guns, and breast pumps. In 2023, participants can donate up to $3,050.
Learn more about HSA contribution limits and FSA spending.
education expenses
Education costs money, but the government offers several ways to ease that burden.
Student loan interest deduction: If you paid off your student loans, you can deduct up to $2,500 in interest.
american opportunity tax credit: AOTC can reduce your taxes by up to $2,500 per student, depending on your income (or your parents' income). In some cases, credits may be refunded. If the credit reduces the amount owed to the IRS to $0, you can get up to 40% of the remaining amount back, up to $1,000. AOTC will credit 100% of her first $1,000 in qualified education expenses. You will then be credited with 25% of the next $2,000 in qualified education expenses. Eligible expenses include tuition, fees, and required course materials (such as textbooks).
lifelong learning tax credit: With the LLTC, you can claim a 20% credit on up to $10,000 spent on eligible tuition and educational expenses paid to eligible students enrolled at eligible colleges or institutions. There is no limit to the number of years that credits can be earned, making it especially useful for students in graduate school, continuing education programs, or those completing certificate programs. However, unlike the AOTC, it is worth up to $2,000 per tax return, not per student, and is non-refundable.
529 plan: While your children are still young, you can put money into these investment plans up to the limit each year. You use after-tax money, but some states (each state has its own plan and rules) offer a state tax deduction for your donations. When you're ready to spend your money on qualified education expenses, such as tuition, books, supplies, and room and board, your withdrawals are tax-free.
Read more about these tax saving ideas.
About daily money
This is a special Sunday tax edition of The Daily Money. Every week, The Daily Money brings you the best consumer news from USA TODAY. We analyze financial news and give you his TLDR version of how the Federal Reserve, government and corporate decisions affect you.
