Author: Leon Clinton

Health Savings Accounts (HSAs) are designed for use alongside high-deductible health plans, assisting you in covering your medical expenses. They can also function as an incredible retirement account due to their triple tax benefit:

• You can deduct contributions from your taxes.
• Your account balance grows without being taxed.
• Withdrawals for medical expenses are tax-free.

And after age 65, you can use the monies for non-medical purposes, the same as you can with a traditional IRA, and pay taxes at ordinary income rates but without penalties.

We recommend that you fully fund your HSA each year until you enroll in Medicare and ideally minimize distributions. By doing so, even if you start at age 50, you could accumulate $200,000 or more by the time you reach age 65.

To assist in funding your HSA, there is a special, lesser-known rule: You can roll over funds from your IRA to your HSA once in your lifetime through a qualified HSA funding distribution.

The rollover amount is limited to your HSA contribution limit for the year. In 2023, this amounts to $3,850 for individual coverage and $7,750 for family coverage. If you are over age 55, you can add a $1,000 catch-up contribution.

The rollover amount doesn’t count as income, isn’t deductible, and reduces the amount you can contribute to your HSA for the year. The big benefit is that you turn this otherwise taxable money into tax-free money when you use it for medical expenses.

If you would like to discuss your HSA, please call me on my direct line at 408.778.9651.

• By Leon Clinton
• May 3, 2023

I know you have been thinking about employee fitness and possibly a gym or other athletic facility.

To be tax deductible, your gym or other athletic facilities must be primarily for the benefit of your employees—other than employees who are officers, shareholders, or other owners who own a 10 percent or greater interest in the business or other highly compensated employees.

For the 10 percent ownership test, the law treats employees as owning any interest owned by their brothers and sisters, spouses, ancestors (such as parents and grandparents), and lineal descendants (such as children and grandchildren).

The highly compensated group consists of employees who earned more than $150,000 for the preceding year.

The gym or other athletic facility must benefit the rank-and-file employees’ group more than the owner and highly compensated group. Think of this primary-benefit test as a 51-49 test.

This means that the rank-and-file employees and their families must use the facility on more days than the owner and highly compensated group does.

To see if you pass the 51-49 test, look only at days of use of the facility.

Example. Rank-and-file employees use the gym 235 days during the year and you, the business owner, use it 137 days. The gym passes the 51-49 test. It’s tax-free to the users and deductible to the business as an employee recreational facility.

If you would like to discuss the tax benefits of providing a gym or other athletic facility for your business, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 28, 2023

If your children work in your business, consider giving them education fringe benefits. Doing this right creates

• tax deductions for the business, and
• tax-free fringe education benefits for the child.

You can accomplish this without a Section 127 plan when your child needs the education to do the job for your business or comply with a law or regulation.

In general, you can’t treat undergraduate degree programs as work-related education. If you pay for such programs outside of a Section 127 plan, you must treat the payments as taxable income to the child-employee.

But certain individual courses within a program may be evaluated separately, and certain courses, such as accounting courses for an employee-child with an accounting job, may qualify for tax-free working condition fringe benefit payments.

On the other hand, MBA programs can qualify as work-related education if they maintain or improve the employee’s skills for their current profession or business.

In addition to the possibilities above, if your child is age 21 or older, the Section 127 plan can offer up to $5,250 in tax-free education benefits.

Your ability to offer tax-free education benefits can be an excellent incentive for your employee-child and a cost-effective way to invest in your business’s future. Contact me at 408-778-9651 to discuss how we can assist you in establishing a tax-beneficial system.

• By Leon Clinton
• April 25, 2023