When the government tells you that you qualify for a tax deduction, it is my belief that you should take it. Don't claim more than you deserve, but take everything you've got coming. There is no honor in paying more taxes than you really owe. A couple months ago I wrote about using your HSA to pay for dental expenses. This month, I'm going to share some ideas on some other tax deductions that you don't want to miss out on if you own an HSA.
A partial list of qualified medical expenses is provided in IRS Publication 502. There is no such thing as a definitive list of "qualified medical expenses", though there have been thousands of cases involving the many nuances of what constitutes "medical care" for purposes of section 213(d) of the Internal Revenue Code.
According to the U.S. Treasury Department, virtually any expense that is primarily for the prevention or alleviation of a physical or mental defect or illness can be considered a qualified medical expense. Any qualified medical expense can be paid for tax-free using funds from your HSA.
Most bathroom cabinets contain a bottle of Advil or aspirin, perhaps some antacids, cold and flu medications, and other over-the-counter medication. People who own Health Savings Accounts can pay for sleep aids, motion sickness pills, throat lozenges, and most other over-the-counter medicines tax-free from their HSA.
One of the things that we keep around is echinacea and astragalus, two herbal extracts that are immune stimulants and come in children's flavors. Herbal medicines can be paid for from your HSA only if prescribed by your medical practitioner. Fortunately, HSA legislation puts very few restrictions on the type of medical care you use, giving you, the consumer, the power to decide how to manage your health.
If nutritional supplements have been recommended by your medical practitioner, to treat or prevent a specific condition, then you may be able to use your HSA to pay for it. (You may not use your HSA to pay for a vitamin taken for general health.)
As one example, there is a tremendous amount of evidence to support the use of fish oil to lower the risk of cardiovascular disease. In my opinion*, it is one of the most important nutritional supplements for most people to take. In 2002, the conservative American Heart Association even issued a scientific statement saying:
Omega-3 fatty acids have been shown in epidemiological and clinical trials to reduce the incidence of CVD. Large-scale epidemiological studies suggest that individuals at risk for CHD benefit from the consumption of plant- and marine-derived omega-3 fatty acids, although the ideal intakes presently are unclear. Evidence from prospective secondary prevention studies suggests that EPA+DHA supplementation ranging from 0.5 to 1.8 g/d (either as fatty fish or supplements) significantly reduces subsequent cardiac and all-cause mortality.
My healthcare provider recommends that I take fish oil supplements to reduce my risk of cardiovascular disease, so I've decided to pay for it from my HSA. I'm probably spending $5 or $6 a week on this supplement, the equivalent of another $300 that I don't have to pay income taxes on. Not only am I saving money, but I'm also reducing the chance that I may one day be hitting Medicare up for a bypass operation. It's win-win for everybody.
By the way, if you (and perhaps your doctor) decide you should be taking fish oil, I recommend using a high-quality brand. Fish oil is very fragile, and goes bad very easily. I've found inexpensive low-quality brands cause one to burp up fish taste, not a pleasant side effect.
To enable you to pay for small expenses like over-the-counter medications directly from your HSA, many HSA Administrators offer a debit card. You may also reimburse yourself from your account if you paid with cash or a credit card.
Those of you who read last month's email know that I've decided to reimburse myself from my HSA at a later date, giving the account some time to grow, tax-deferred. So I'm throwing all my medical receipts into a file labeled "un-reimbursed medical expenses", and whenever I am ready, I will reimburse myself from my HSA.
Attention: This is not tax advice
Remember, I'm not an accountant, and HSA for America is not engaged in rendering tax advice. I've given you some examples of how you can pay for over-the-counter medications from your HSA, as well as for nutritional supplements under certain conditions. If you're uncertain as to whether an expense is primarily for the treatment or prevention of a medical condition, then talk to your own accountant or financial advisor.
My objective in this newsletter is to help you take maximum advantage of your health savings account. Many accountants are still not yet familiar with all the money-saving benefits of Health Savings Accounts, so feel free to invite your own accountant to subscribe at http://www.hsaforamerica.com/newsletter.htm.
If you still don't have an HSA, please give us a call at 866-749- 2039 and we'll be happy to give you some options to consider.
P.S. For more information about what you can pay for using your HSA, see our Tax-Subsidized Medical Expenses page.
*P.S.S. Everybody has opinions, and I'm certainly not giving medical advice. But last week, four years after deciding to return to school for an advanced degree, I successfully defended my master's thesis in human nutrition at Colorado State University. That said, it's still just my opinion that most people would benefit by taking fish oil, but at least it's an educated opinion.