Accounting
Common HSA mistakes cost savers
Clients eager to use the benefits of health savings accounts must steer clear of all-too-common mistakes that could bring large tax payments or big penalties, according to experts.
Financial advisors and tax professionals can help clients
HSA holders who spend money from their account for a nonqualified expense will pay up to 20% of the withdrawal amount as a penalty, Torres noted in an interview. And, if the IRS begins to review the HSA outlays, its auditors are more likely to begin probing other areas of a tax return in a way that “could be very time-consuming and expensive” for the client, she said.
“All of this is going to be included in your tax return. You don’t necessarily have to submit receipts or proof of the expense when you file your tax return,” she said. “They could go back and say, ‘OK, you withdrew $10,000 from your HSA last year. Can you show us the qualified expenses that this was used for?'”
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Thompson counts himself “a huge proponent of HSAs,” but he counsels clients about the tax impact to any non-spouse heirs who may be in line to receive the assets, he noted. They could avert a potential tax bill to the beneficiaries by draining the accounts of assets to pay medical bills, assigning their HSA to a spouse in their estate plan or considering the use of trusts or charitable gifts, Thompson said.
“It’s 100% taxable. It basically becomes an IRA, but it’s an IRA that’s just immediately distributable to the person who inherits it,” he said. “That’s one of the few downsides.”
Another cautionary area revolves around Medicare, which is
In addition, experts recommend that HSA holders cut off any contributions from themselves and their employers for at least six months before applying for Medicare,
“When taxpayers opt to continue working past age 65 and wish to continue funding an HSA, they need to be very clear on the Medicare rules of application and enrollment to avoid either penalties for excess HSA contributions or late-enrollment penalties for Medicare Part B and Part D,” Long wrote.
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“Not everybody is considering their employer contribution plus their payroll contribution — they all go toward that maximum,” she said. “We see that when people leave an employer midyear and they have that HSA from that prior employer and they want to try to maximize the triple-tax advantage of having that HSA. So they max out.”
HSA savers may also run into penalties if they, for example, expect to pay medical bills of $5,000 that only end up costing $4,200 and then forget to return the remaining money to the account, Torres said.
“Everything can be fixed, and as long as you do it in that same tax year, you’re going to be OK,” she said. “There are remedies, so you want to stay on top of it. You can always put the money back and document that you’re putting it back because it’s a mistake.”
President-elect Donald Trump and his Republican party clarified one aspect of the uncertainty surrounding taxes with a resounding victory in the election.
That means that the many expiring provisions of the Tax Cuts and Jobs Act of 2017 — which Trump signed into law in his first term — are much more likely to remain in force after their potential sunset date at the end of next year. Financial advisors and tax professionals can act without worrying that the rules will shift underneath them to favor much higher income duties.
However, the result also presents Trump and incoming Senate Majority Leader John Thune of South Dakota and House Speaker Mike Johnson of Louisiana with a series of thorny tax policy questions that have tricky, time-sensitive implications, according to Anna Taylor,
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Considering the fact that
“They’re going to have to pick their budget number on the front end,” Taylor said. “They’re going to have to pick that number and put it in the budget resolution, and then they’ll kind of back into their policy so that their policies will fit within their budget constraints. And once you get into that process, you can do a lot in the tax base, but there are still limits. I mean, you can’t do anything that affects the Social Security program. So they won’t be able to do the president’s proposal on getting rid of taxes on Social Security benefits.”
Individual House GOP members will exercise their strength in the negotiations as well, and the current limit on
The president-elect and his Congressional allies will have to find the balance amid the “real tension” between members from New York and California and those from low-tax states such as Florida or Texas who will view any increases to the limit as “too much of a giveaway for the wealthy New Yorkers and Californians,” he said.
“You will need almost perfect unity — more so in the House than the Senate,” Traub said. “This really gives a lot of power, I think, to any small group of House members who decide that they will lie down on the train tracks to block a bill they don’t like or to enforce the inclusion of a provision that they really want. I think the place we’ll watch the most closely at the get-go is over the SALT cap.”
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Estimates of
The Treasury Department could “use their extraordinary measures to get them through a few more months before they actually have to deal with the limit,” she said.
“But they’re going to have to make a decision,” Taylor continued. “Are they going to try to do the debt limit first, maybe roll it into some sort of appropriations deal early in the year? Or are they going to try to do the debt limit with taxes, and then that’s going to really force them to move really quickly on taxes? So, I don’t know. I don’t know that they have an answer to that yet. I’ll be really interested to see what they say in terms of how they’re going to move that limit, because they’re going to have to do that at some point — rather soon, too.”
Looking further into the future at the end of next year with
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Both parties have used reconciliation in the wake of the last two presidential elections. A continuing resolution-style patch on a temporary basis would have been more likely with divided government, he said.
“Had that been what the voters called for last Tuesday, I think that the odds of a short-term extension into 2025 would have been a lot higher,” Traub said. “I don’t think that anybody in the GOP majority right now is thinking about a short-term extension. They are thinking about, ‘We have an unusual ability now to use reconciliation to affect major policy changes.'”
The deal will grow Aprio’s geographic footprint while enabling it to expand into new local markets and industries. Financial terms were not disclosed. Aprio ranked No. 25 on Accounting Today’s 2024 list of the Top 100 Firms, with $420.79 million in annual revenue, 210 partners and 1,851 professionals. The deal will add five partners and 31 professionals to Aprio.
In July,
KKB has been operating for six decades offering accounting, tax, and business advisory services to industries including construction, real estate, professional services, retail, and manufacturing. “There is tremendous synergy between Aprio and KKB, which enables us to further elevate our tax, accounting and advisory capabilities and deepen our roots across California,” said Aprio CEO Richard Kopelman in a statement. “Continuing to build out our presence across the West Coast is an important part of our growth strategy and KKB is the right partner to launch our first location in Southern California. Together, we will bring even more robust insights, perspectives and solutions to our clients to help them propel forward.”
The Woodland Hills office will become Aprio’s third in California, in addition to its locations further north in San Francisco and Walnut Creek. Joe Tarasco of Accountants Advisory served as the advisor to Aprio on the transaction.
“We are thrilled to become part of Aprio’s vision for the future,” said KKB managing partner Carisa Ferrer in a statement. “Over the past 60 years, KKB has grown from the ground up to suit the unique and complex challenges of our clients. As we move forward with our combined knowledge, we will accelerate our ability to leverage innovative talent, business processes, cutting-edge technologies, and advanced solutions to help our clients with even greater precision and care.”
Aprio has completed over 20 mergers and acquisitions since 2017, adding
House Speaker Mike Johnson said Donald Trump’s plan to end income tax on tips would have to be paid for, injecting a note of caution into one of the president-elect’s key campaign pledges.
“This is one of the promises that he wants to deliver on,” Johnson said Sunday on CNN’s State of the Union. “We’re going to try to make that happen in the Congress. You’ve got to do the math.”
Johnson paired his comment with pledges to swiftly advance Trump’s economic agenda once the newly elected Congress is in place with Republican majorities in the House and Senate. The former president rolled out a series of tax-cut proposals during his successful bid to return to the White House, including rescinding taxes on overtime, Social Security checks and tips.
Tierney L. Cross/Bloomberg
“You have got to make sure that these new savings for the American people can be paid for and make sure the economy is a pro-growth economy,” said Johnson, who was among
Congress faces a tax marathon next year as many of the provisions from the Republicans’ 2017 tax bill expire at the end of 2025. Trump’s declared goal is to extend all of the personal income tax cuts and further reduce the corporate tax rate.
A more immediate challenge may be ahead as Trump seeks to install loyalists as cabinet members for his second term starting in January, including former Representative Matt Gaetz as Attorney General, Robert F. Kennedy Jr. as secretary of health and human services and former Representative Tulsi Gabbard for Director of National Intelligence.
Gaetz was under investigation by the House Ethics Committee for alleged sexual misconduct and illicit drug use, which he has denied. RFK Jr. is a vaccine skeptic and has endorsed misleading
Donald Trump Jr., the president-elect’s son who has been a key player in the cabinet picks, said he expects many of the choices will face pushback.
“Some of them are going to be controversial,” Trump Jr. said on Fox News’ Sunday Morning Futures. “They’re controversial because they’ll actually get things done.”
‘Because of my father’
Trump Jr. suggested the transition team has options if any candidate fails to pass Senate muster.
“We’re showing him lists of 10 or 12 people for every position,” he said. “So we do have backup plans, but I think we’re obviously going with the strongest candidates first.”
Trump Jr. said incoming Senate Majority leader John Thune owes his post to the president-elect.
“I think we have control of the Senate because of my father,” he said. “John Thune’s able to be the majority leader because of my father, because he got a bunch of other people over the line.”
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