Current:Home > MarketsThe Daily Money: How to save on taxes while investing in your health care and education -Pinnacle Profit Strategies
The Daily Money: How to save on taxes while investing in your health care and education
View
Date:2025-04-14 11:41:08
Good morning. This is Medora Lee with your Daily Money, Sunday Tax Edition.
On Sundays between now and April 15, we'll walk you through what's new and newsworthy in Tax Season 2024.
In today’s edition, we’re going to talk about how you can parlay health care and education spending into tax savings.
Health care spending
There are two accounts you can put money into to help pay for your health needs: a flexible spending account (FSA) and a health savings account (HSA). You use pre-tax money to fund these accounts, up to a certain limit, and any qualified withdrawal to pay a medical expense is tax free.
An HSA is more flexible because money can be invested to grow and unused money rolls over indefinitely. However, you can only use the HSA if you have a high-deductible health plan. For 2023, the maximum HSA contribution is $3,850 for an individual and $7,750 for a family, but participants 55 and over may contribute an extra $1,000. That means an older married couple could contribute $8,750, all pre-tax.
An FSA is a use it or lose it account. Generally, you have a year to use up all the money in the account on eligible care or you lose it - unless your employer offers an exception. The good news is that the list of things you can use the money for has grown over the years to include even everyday items like Tylenol, sunscreen, menstrual care, contact lenses and glasses, massage guns, breast pumps and more. For 2023, participants may contribute up to a maximum of $3,050.
Read more about HSA contribution limits and FSA spending.
Education expenses
Education is expensive, but the government offers several ways to soften the blow.
Student loan interest deduction: If you made a student loan payment, you can deduct up to $2,500 of the interest.
American Opportunity Tax Credit: AOTC can reduce how much you owe in taxes by up to $2,500, depending on your income (or that of your parents), per student. In some cases, the credit may be refundable. If the credit brings what you owe to the IRS to $0, you can have up to 40% of the remaining amount refunded to you, up to a maximum of $1,000. AOTC gives you credit for 100% of the first $1,000 of qualified education expenses. After that, you get credit for 25% of the next $2,000 of qualified education expenses. Qualified expenses include tuition, fees and required course materials (like textbooks).
Lifetime learning tax credit: With LLTC, you can claim a credit for 20% of up to $10,000 spent on qualified tuition and education expenses paid for eligible students enrolled in a qualifying college or educational institution. There is no limit on how many years you can claim the credit, making it especially useful for students in graduate school, continuing education programs or those who are completing certificate programs. However, unlike AOTC, it's worth up to $2,000 per tax return—not per student -- and it’s not refundable.
529 plans: You can fund these investment plans each year up to a limit while your child is still young. You use after-tax money, but some states (each state has its own plans and rules) offer a state tax break on contributions. When you're ready to use the money for qualified educational expenses like tuition, books, school supplies and room and board, withdrawals are tax free.
Read more about these tax saving ideas.
About the Daily Money
This has been a special Sunday Tax Edition of The Daily Money. Each weekday, The Daily Money delivers the best consumer news from USA TODAY. We break down financial news and provide the TLDR version: how decisions by the Federal Reserve, government and companies impact you.
veryGood! (933)
Related
- Pregnant Kylie Kelce Shares Hilarious Question Her Daughter Asked Jason Kelce Amid Rising Fame
- A punishing heat wave hits the West and Southwest U.S.
- Inflation may be cooling, but the housing market is still too hot for many buyers
- Citing Health and Climate Concerns, Activists Urge HUD To Remove Gas Stoves From Federally Assisted Housing
- Whoopi Goldberg is delightfully vile as Miss Hannigan in ‘Annie’ stage return
- Al Gore Talks Climate Progress, Setbacks and the First Rule of Holes: Stop Digging
- NPR veteran Edith Chapin tapped to lead newsroom
- Young men making quartz countertops are facing lung damage. One state is taking action
- Paris Hilton, Nicole Richie return for an 'Encore,' reminisce about 'The Simple Life'
- Maryland’s Largest County Just Banned Gas Appliances in Most New Buildings—But Not Without Some Concessions
Ranking
- New Mexico governor seeks funding to recycle fracking water, expand preschool, treat mental health
- Uprooted: How climate change is reshaping migration from Honduras
- Netflix shows steady growth amid writers and actors strikes
- Oil Companies Had a Problem With ExxonMobil’s Industry-Wide Carbon Capture Proposal: Exxon’s Bad Reputation
- Highlights from Trump’s interview with Time magazine
- 2022 Will Be Remembered as the Year the U.S. Became the World’s Largest Exporter of Liquified Natural Gas
- Why Khloe Kardashian Feels Like She's the 3rd Parent to Rob Kardashian and Blac Chyna's Daughter Dream
- Cause of Death Revealed for Bob Marley's Grandson Jo Mersa Marley
Recommendation
Highlights from Trump’s interview with Time magazine
In-N-Out Burger bans employees in 5 states from wearing masks
Why American Aluminum Plants Emit Far More Climate Pollution Than Some of Their Counterparts Abroad
Taco John's has given up its 'Taco Tuesday' trademark after a battle with Taco Bell
Residents worried after ceiling cracks appear following reroofing works at Jalan Tenaga HDB blocks
Zayn Malik's Call Her Daddy Bombshells: Gigi Hadid Relationship, Yolanda Hadid Dispute & More
Decarbonization Program Would Eliminate Most Emissions in Southwest Pennsylvania by 2050, a New Study Finds
Why Patrick Mahomes Says Wife Brittany Has a “Good Sense” on How to Handle Online Haters