Use your FSA funds for health-care expenses.
If you anticipate large health-care expenses for the coming year, you can save money by contributing pre-tax income to a flexible spending account and using that money to pay your health-care providers. The money you contribute to a flexible spending account helps lower your taxable income and your tax liability as well.
Payroll Deductions
When you sign up for a flexible spending account, you can contribute to that plan through payroll deductions, much the same way you put money into your 401k plan. Those payroll deductions provide you with a relatively painless way to put money toward your health-care expenses, since the money comes straight out of your paycheck before you get a chance to spend it.
Lower Taxes
Since the money you put into a flexible spending account goes in on a pre-tax basis, the end result is a lower tax bill for you. The amount you contribute to the FSA is deducted from your federal taxable wages, which in turn lowers your taxable income and your tax liability. Depending on your situation, participating in a flexible spending account can reduce the amount you owe, or boost the size of your tax refund.
2013 Limits
As of 2011, you can contribute as much to a flexible spending account as your employer allows, but that law is changing. As part of the health-care bill passed and signed by President Obama, flexible spending accounts will be limited to $2,500 per year as of Jan. 1, 2013. If you anticipate any large health-care expenses, you might want to schedule those treatments before 2013, since you can put as much into your FSA as you want until then.
Advance Tax Planning
If you plan to participate in a flexible spending account at your office, do some advance tax planning to see how much those contributions can save you on your taxes. You can use a tax preparation software package to run the numbers on your taxes both with and without that FSA contribution. This allows you to see at a glance exactly how much you can save by putting money aside for your medical expenses ahead of time.
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