Take Advantage of an FSA or HSA

Whether you are employed or self-employed, you want to take advantage of a Flexible Spending Account (FSA) or Health Savings Account (HSA) to pay for healthcare expenses using pre-tax dollars. This saves you at least the amount of money that you would have paid in income taxes on the amount you set aside for these plans. You will have to check with your employer to determine which plan may be offered and details for setting it up.

Better to Over-estimate than Under-estimate:
Yes, at the end of the plan year you lose the amount of money left in your account if it is not spent. But remember that unless that amount exceeds the amount of tax you would have paid on that income, you are still better off. A quick example may help illustrate: Assume you are in the 25% tax bracket and estimate eligible healthcare expenses of $1,000 for the plan year. Your income tax savings by contributing to an FSA is $250 ($1,000 * 25%). If you only spend $800 of your $1,000 in the FSA during the year, you still save $50 ($800 - $750). By spending the entire $1,000, you end up saving the entire $250.

Eligible Expenses:
A quick Google search can retrieve several lists of eligible and non-eligible healthcare expenses. In general, you can plan on including any over-the-counter (OTC) medications, doctor visits copays, prescriptions, or other essential medical expenses. You can find a rather specific list here.