Still Time to Make 2023 IRA and HSA Contributions

As we approach the filing deadline for 2023 individual tax returns, we want to remind you that there is still time to make contributions to your Individual Retirement Account (IRA) and Health Savings Account (HSA) for the 2023 tax year. The IRS allows contributions for a given year anytime between January 1 and the tax-filing deadline of the following year. The filing deadline for 2023 is April 15, 2024, so you still have a couple of weeks to make 2023 contributions and potentially reduce your tax burden.

IRAs

For 2023, the total contributions you can make to your traditional and Roth IRAs is $6,500, or $7,500 if you are age 50 or older. It is important to note that these limits apply to the total contributions to all your IRAs, not to each individual account.

The deduction for your traditional IRA contribution may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels.

HSAs

For 2023, HSA contribution limits are $3,850 for self-only coverage and $7,750 for family coverage. Those aged 55 and older can contribute an additional $1,000 as a catch-up contribution.

HSAs offer a triple tax advantage: contributions are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free. It’s important to remember that to contribute to an HSA, you must be enrolled in a high-deductible health plan.

Deadline Fast Approaching

Remember, you have until the tax filing deadline to contribute to your IRA and HSA for the previous tax year. So, there is still time to make contributions and potentially max out your IRA and HSA for the 2023 tax year.

As always, it is recommended you consult with your KT tax advisor if you have any questions about your IRA and HSA contributions.

April 2, 2024

New E-Filing Requirements You Need to Know

As we begin 2024, it’s crucial to start assembling all the essential information required for accurate filing of W-2 and 1099 information forms. The IRS mandates that any entity — be it a corporation, partnership, individual, estate, or trust — involved in a trade or business and engaged in reportable transactions throughout the calendar year must file information returns. These returns serve to report these transactions to the IRS and require providing statements to the other involved party.

New for the 2023 tax year, if you have 10 or more information returns (such as W-2s and 1099s), you must file them electronically. The following information return forms must be added together for determining electronic filing requirements: Form W-2, the Form 1099 series, Form 1042-S, the Form 1094 series, Form 1095-B, Form 1095-C, Form 1097-BTC, Form 1098, Form 1098-C, Form 1098-E, Form 1098-Q, Form 1098-T, Form 3921, Form 3922, the Form 5498 series, Form 8027, and Form W-2G.

For example, filing 4 W-2s and 7 1099-NEC forms would total 11 information returns, therefore meeting the requirement to have to file electronically.

When determining whether to file a 1099, there are a couple of key factors to bear in mind. First, any payment or series of payments totaling over $600 for non-employee services necessitates a 1099. Some common services include contract work, maintenance and repair services, professional services, and rental payments. However, if these services were paid for using a credit card, the responsibility for filing the 1099 rests with the payment processor, not with you. It’s worth noting that payments made exclusively for purchasing merchandise or inventory items do not need to be reported on a 1099. This covers expenses involving materials and supplies that will become a part of merchandise.

Second, payments to an incorporated entity typically do not mandate a 1099 filing. Nevertheless, there are two notable exceptions to this guideline. Attorney fees and medical payments, regardless of the entity’s corporate status, require the filing of a 1099.

To assist with the new filing requirements, the IRS has created a new, free online taxpayer portal used to file the Form 1099 series information returns electronically. Those who typically paper file their 1099 forms may also find this portal useful. The portal, known as the Information Returns Intake System (IRIS), can be utilized to create, upload, edit and view information, and download complete copies of 1099-series forms.

In reference to IRIS, it’s important to note that obtaining a Transmitter Control Code (TCC) is necessary. Please be aware that this process may take up to 45 days, so prompt action is advised without delay. For more information or to begin the application process, visit: Application For TCC.

Note that it is not necessary to sign up for a TCC if Ketel Thorstenson is filing your information returns. If there are questions regarding the new e-filing requirements for information returns make sure to contact your KT advisor.

January 5, 2024

Is an HSA Right for You?

What is an HSA?

As Health Savings Accounts (HSA) become more popular, you may ask the question, “what is an HSA?” An HSA is a health account that is used for qualified medical expenses. Common examples of qualified medical expenses include dental care, glasses, prescription medication, insulin, and so forth. As such, qualified medical expenses generally do not include health insurance premiums or reimbursed expenses.

For example, Bob has surgery that costs $4,000. He withdraws $4,000 from his HSA to pay for his surgery. However, his employer reimburses $1,500 of the costs. Thus, Bob would only have $2,500 in qualified medical expenses.

HSA Qualifications

There are a few requirements from the IRS to qualify for an HSA:

  • You must be covered under a high-deductible health plan (HDHP) on the first day of the month. For 2023, the HDHP minimum annual deductible for single coverage is $1,500 and for family coverage is $3,000. For 2023, the maximum annual deductible for single coverage is $7,500 and $15,000 for family coverage.
  • The HDHP must be the only form of health insurance coverage with some limited exceptions. These exceptions include a specific illness or disease, disability, and long-term care coverage.
  • You must not be currently enrolled in Medicare. This includes both Medicare Part A and Part B.
  • You should not be claimed on someone else’s 2022 tax return as a dependent.

Benefits of an HSA  

An HSA has been referenced by some as an “IRA on steroids.” How is a health account used for qualified medical expenses referenced as such? The HSA offers a “triple-tax-free” benefit.

  1. Contributions may be 100% tax deductible. This means that contributions made towards an HSA will lower your gross income subject to taxation for the tax year.
  2. HSA’s grow tax-free. This means that there can be growth in an HSA account that will not be subject to tax.
  3. HSA distributions are not taxed so long as they are used for qualified medical expenses.

One more additional benefit is that amounts left in an HSA at year-can be carried forward into the next year.

Another benefit that is often overlooked is that out-of-pocket medical expenses incurred after establishing an HSA may be reimbursed from the HSA account at a later year. For example, let’s assume Bob has established an HSA account and put $3,000 in there. Let’s also assume he has a qualified medical expense in 2022 of $2,000. Of course, he could choose to just pay the $2,000 via his HSA account or he can pay this expense out-of-pocket. If Bob pays the expense out-of-pocket then he can reimburse himself for the expense in a later year. Thus allowing the funds to grow tax-free and allowing Bob to receive the distribution tax-free.

A few requirements that Bob should keep in mind when considering this option are:

  1. The distributions received must be reimbursed for qualified medical expenses.
  2. Qualified medical expenses must not have been reimbursed from another source such as an employer.
  3. Medical expenses must not have been taken as an itemized deduction.
  4. Must keep receipts for the qualified medical expenses reimbursed.

2023 HSA Contribution Limitations

There are of course limitations to HSA contributions. For 2023, the maximum contribution for an individual is $3,850 and is $7,750 for a family. There are also $1,000 catch-up contributions for individuals 55 and over until they reach age 65 or enroll in Medicare.

An HSA is a great tax tool that offers many benefits. Of course, you must meet the requirements from the IRS to qualify for an HSA – most notably, you must be enrolled in a HDHP. As such, it is best to consult your KT advisor to see if an HSA is the right decision for you.

October 9, 2023