Tuesday, November 29, 2016

Smart Money, Tax Saving with Health Savings Account

Would you open saving account in which doesn’t need to pay income tax?
It’s definitely yes for me. A health savings account (HSA) is a tax-free savings account for U.S. taxpayers who are enrolled in a high-deductible health plan (HDHP). Basically, it is the saving account that you or your employer can deposit money in every year. You can use this account to pay for your medical expenses. For example, you deposited $3,000 in 2015 and you went to see the doctor. You need to pay $1,000 as deductible to the hospital. You withdraw $1,000 from your HSA account to pay the bill. Now, your HSA balance is $2,000 ($3,000-$1,000) that can be used. HSA balance is roll over and accumulated year to year if it is not being used. The good thing is that the money that you deposit in your HSA account each year can be deducted from your income so it will reduce your tax liability.

When you file your tax return each year, you can reduce your income by subtract amount that you deposit to your HSA account that year. It is located in 1040 form, item number 25 (for tax year 2015). The label is “Health savings account deduction” as figure 1 below.

Figure 1: 1040 Form, item 25 (for tax year 2015)

Let’s do the math. Assuming that you are single, earn $50,000 and deposit $3,350 in your HSA account in 2015. Please see figure 2 below for this example. We are going to compare between No HSA and with HSA to see how much we can save. First, you are single so we will use Standard deduction $6,300 (line 2) and Personal Exemption $4,000 (line 3) to make it easier for calculation. The different is at line 4 which is HSA amount; $0 vs. $3,350. Second, we will apply the taxable income equation.

               Taxable income = income – standard deduction – exemptions – HSA 

2015 Income
Standard deduction

Taxable income


Tax saving


Figure 2: 2015 Tax Calculations

Finally, we will use the taxable income to calculate the total tax. In this example, I used TaxAct and TurboTax online income tax calculator to get the result on line 6. Luckily, both produced the same results. As you can see that you would pay less tax for 2015 if you had HSA. Total saving is $730 (line 7) plus you would have $3,350 extra for your future health expenses.

Things you need to know.
1.      HDHP. You need to have the high-deductible health plan (HDHP) in order to participate in the HSA program. When you purchase health insurance from market place, you need to make sure that you select the plan that eligible for HSA. Mostly, bronze plan is eligible.
2.      There is an annual limit amount that you can deposit to HSA based on your status. For example, the deposit limit for single is $3,350 and family is $6,750 for year 2016. All deposits to an HSA from both employee and employer count toward the annual limit.
For example, year 2016, single:          $3,350 <= employee deposit + employer deposit
3.      If you reach age of 65 or become disabled, you can withdraw money from HSA for non-medical expenses without a 20% penalty. However, you still need to pay income tax for that amount.
4.      Investments: you can use money in your HSA to invest. Investment earnings are not subjected to income tax unless you withdraw for non-medical expenses. This is another advantage for having HSA. Let’s say, you have $10,000 in your HSA. You keep $5,000 in the saving account for your medical expenses and you keep another $5,000 in the investment funds. If your funds are increased in value 10%, you would earn $500. You have $10,500 in total and no tax is paid at the time you earn.

Historical data compiled for single/individual: 2004-2017

Figure 3: Deposit limit, Min deductible, Max out-of-pocket for single since 2004-2017

Historical data compiled for Family: 2004-2017

Figure 4: Deposit limit, Min deductible, Max out-of-pocket for Family since 2004-2017

Based on the charts above, you might notice that the deposit limit increase almost every year for both individual/single and family. IRS adjusts limit based on inflation rate each year which is good for us if we rarely use HSA for medical expenses because we are healthy. Investment profit from this account is tax-free.

This article should give you a basic understanding about HSA; you can read this guidebook link for more detail. It should give you an idea or provide an option for you to manage your hard-earned money.

The information presented hereupon is provided for informational purposes only and should not be interpreted as tax or legal advice. The information presented here has been obtained from IRS publications. Always consult a qualified tax planning advisor.

By Niwech Harnkham, M.S.

Founder and President of EKSPERTSOFT, LLC


Wednesday, November 16, 2016

Protectionism: Déjà vu Again under the New U.S. President-elect’s Foreign Policies

By Niwech Harnkham, November 16, 2016. USA

The President-elect Donald Trump has said that he would end the NAFTA and declare China as the currency manipulator during his lengthy presidential campaign. Basically, he would impose 45 percent tariffs (taxes) on all products importing from China. His strategy will increase the imported products’ cost and it will force manufacturers to produce products in U.S. instead. This strategy is called “Protectionism” in which the government restricts the international trade by using tariffs and quotas on import goods. This strategy intends to protect the domestic businesses and jobs from other countries. The main objective of the protectionism is to help local businesses by restricting the imports and reduce tax for domestic businesses.

The protectionism or protectionist economic policy is not something new. This policy was used in the 19th century. The Northern industries used it to restrain the imports of cotton and other agricultural from the Southern states.  According to the Global Trade Alert, U.S. has adopted nearly 800 protectionist measures since the Global Economic Crisis in 2008 (Wikipedia, 2016).

Protectionist policy can be implemented by tariffs, quotas, product standards and government subsidies.  Tariffs are used by increasing taxes for import goods so that local businesses can compete with foreign products prices. Quotas are used to limit the number of products that can be imported in order to limit the supply of specific product during a period of time. It is being used to prevent the product dumpling in which the foreign company exports products at below production costs to gain market share. Product Standards is used to set the rule and regulation for curtain product to meet the U.S. standards such as product safety, labeling as well as hazardous materials. These measures will prevent some products to import to U.S.  The last one is the government subsidies in which the government provides subsidies to help lower the cost of production so that the domestic business can make profit at the lower price.

Enough for the theory yet! Let’s talk about the President-elect’s vision on the free trade agreements.

President-elect is going to end or renegotiate the free trade agreements with China. He said that he would end the NAFTA which is the North America Free trade Agreement between U.S., Canada and Mexico. What he is going to do is to increase the import taxes for goods from China, Canada and Mexico, and other countries too. He plans to do this hoping that the U.S. and foreign companies will move to U.S. that will create more jobs for American. At the moment, the Ford Motor is cutting jobs in Michigan then will move production of small car to Mexico. If Trump ends the NAFTA, then Ford will be in trouble because it will need to pay more taxes for importing cars from Mexico into U.S. Increasing taxes, increasing product cost at the bottom line.

On another hand, China can do the same to protect its economy. Chinese government can limit quota of U.S. products to Chinese consumers. It can limit the number of the Chinese students who want to study in U.S. Universities. It can cancel the order of airplanes from Boeing which is the U.S. company then favors Airbus who is the competitor located in EU.

“Boeing contributes as much as $1 billion annually through its activities in China, including supply procurement, joint-ventures, operations, training and research and development investment (Bloomberg, 2016).” This is huge!

We are heading to the trade war era. We will witness how countries execute the foreign policies to protect their countries as protectionism is coming back. 


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