The IRS issued an important update to the taxpayers of partnerships and S corporations on January 18, 2022. IRS introduced two new Schedules K-2 and K-3 for the tax year 2021. These two new forms are for reporting any sort of international income, deductions, credits, and other miscellaneous items on pass-through entity tax returns. Partnerships, S corporations, and US citizens with interests in foreign partners are required to file Schedules K-2 and K-3 with their 2022 tax returns. The purpose of these new schedules is to make it easier for taxpayers to provide their partners with the information they need for their respective US tax returns in a more consistent format.

Who is Required to File Schedules K-2 and K-3?

All pass-through entities with items of international tax relevance, including foreign partners and international activities, need to file the new schedules. Partnership with no foreign source income, no assets producing foreign source income, and no foreign taxes paid or accrued are still be required to file Schedules K-2 and K-3. Previously, international tax items were either reported on Schedule K-1, line 16, or provided to partners as a footnote to their Schedule K-1.

Penalty Relief for Schedules K-2 and K-3 During the Transition Period

While filing Schedules K-2 and K-3, the IRS recognizes reporting and compliance issues. Taxpayers, for example, may lack the systems and procedures necessary to obtain the detailed information to determine whether and how they must file a portion of the new schedules. For tax season 2022, fines for erroneous or incomplete reporting on Schedules K-2 and K-3 will not be applied if the partnership or S corporation proves that it made a good faith attempt to comply with the obligations to file or provide the schedules. The revised schedules are designed to give the taxpayers additional transparency and clarity on how to compute their US income tax liabilities from relevant international items.

Taxpayers need to examine and identify the procedural and reporting gaps that exist between prior-year obligations and the new Schedules K-2 and K-3 standards. Since the IRS is still issuing guidance and changes for Schedules K-2 and K-3, it is critical to remain vigilant and up to date.

For most taxpayers, the deadline for submitting 2021 tax returns or requesting an extension to file and pay the tax owed is April 18, 2022. Those who request an extension will have until October 17, 2022, to file their taxes.

IRS Audit Group is a tax audit representation firm in Los Angeles, California. We provide consultation and represent on behalf of you to IRS for any federal and state audits. Our certified attorneys have deep knowledge of IRS rules and norms and have represented many audit cases successfully. Get a free consultation with our tax professionals. Contact us to help you file your tax return for 2021 or any issues related to an IRS audit.

Email address: [email protected]

Telephone Number: (310) 498-7508

https://irsauditgroup.com/contact/

IRS defines a “GIG” economy as sharing economy where individuals earn income by providing on-demand work, services, or goods per the flexibility of both parties.  It often involves a digital platform like a website or mobile application.  Examples include ride-hailing apps, food delivery apps, and holiday rental apps.  It’s a growing segment, bringing economic benefits of productivity and employment.

Who has to File Tax Returns Under Gig Economy?

The gig economy is taxable.  Taxpayers need to report the income in their filings, even if the income is.

• From part-time, temporary, or side work,
• Not reported on an information return form – like a Form 1099-K, 1099-MISC, W-2, or other income statement or
• Paid in any form, including cash, property, goods, or virtual currency.

Tax Slab for Gig Workers

A gig worker who is primarily dependent on the Gig Economy needs to consider taxes to be paid as a self-employed taxpayer.  They need to file tax returns for 2021 if their income from self-employment equals or exceeds $400.  Therefore, it is important to keep a record of all receipts to track income, deduct expenses, and complete tax returns.

How to File Your Income Tax Returns as Gig Workers?

Independent contractors or Gig workers, whether it is a full-time, part-time or side job, need to file their tax returns for 2021 using the below forms.

• Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S.  Tax Return for Seniors
• Schedule SE (Form 1040), Self-Employment Tax
• Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)

 In case the filed tax return needs to be modified, use Form 1040-X, Amended U.S.  Individual Income Tax Return.

IRS provides various options to guide the taxpayers in filing their returns.  Below are a few options that can be utilized by any individuals

• IRS Free File — Use free tax prep software or fillable forms based on your income and the forms you must file.
• Volunteer Income Tax Assistance site — Get free, in-person filing help near you.
• Authorized e-file provider — Search the list of tax professionals approved by the IRS for e-filing.
• File your return by mail — Find addresses by the state to mail your tax return.

IRS Audit Group is a Los Angeles-based Tax Audit Representation firm that helps in resolving common tax problems and provides points of clarification on issues such as tax relief, tax fraud, California state tax issues, and other tax debt-related circumstances.  Our certified tax attorneys help taxpayers in facilitating their filings as well as after filing issues like IRS audits.  Contact us to get a free consultation from our staff members to help us understand your problems.  Email: [email protected], Telephone Number: (310) 498-7508

https://irsauditgroup.com/contact/

The ‘child and dependent care” in the tax system are applicable if the taxpayer paid expenses for the qualifying dependents during a financial year.  The eligibility criteria are listed separately.  This tax credit can be claimed in tax filing by taxpayers under the applicable situations.  

If the taxpayer is a parent or caretaker of a disabled dependent or spouse, they can save the expenses while claiming in this tax filing 2021. For the tax year 2021, the credit is fully refundable. This means that an eligible family can get it, even if they owe no federal income tax. 

Eligibility of Child and Dependent Care Credit

• Taxpayer’s dependent who is under age 13 when the care is provided,
• The spouse who is physically or mentally incapable of self-care and lived with the taxpayer for more than half the year, or
• A person who is physically or mentally incapable of self-care, lived with the taxpayer for more than half the year and either: 

1. 1. is your dependent; or 
   2. Could have been your dependent except that 
      • he or she is over the gross income limit of $4300 
      • or files a joint return, 
      • or you (or your spouse, if filing jointly) could have been claimed on another taxpayer’s return.

Qualifying Claim Amount of Claim and Child and Dependent Care Credit

For 2021, taxpayers can claim the credit for up to $8,000 of expenses for one qualifying person or $16,000 for two or more people. The percentage of expenses you can claim ranges from 0% to 50%, depending on your adjusted gross income (AGI). You can claim the maximum percentage (50%) of expenses if your AGI is $125,000 or less. So, for example, if your AGI is $75,000 and you had $8,000 of expenses for one qualifying person, the tax credit would be worth $4,000 (50% of $8,000). The tax credit starts to phase out if your AGI is above $125,000 and disappears entirely at AGIs above $438,000. For more details, refer to IRS official website below

https://www.irs.gov/newsroom/irs-highlights-importance-of-child-and-dependent-care-credit-can-help-families-others

How to Claim Child and Dependent Care Credit

To claim the credit, taxpayers must fill out Form 2441 and include it with the federal tax return. Further, a valid taxpayer identification number (TIN) for each qualifying person, as well as the names, addresses, and TINs for the people and organizations that provided care for your child, spouse, or dependent must also be included.

According to the IRS, since the advance child tax credit payments cannot be counted as income, federal, state, or local agencies can’t use the amount when determining if you or your family are eligible for other benefits or assistance.

Advance Child Tax Credit payments

Advance Child Tax Credit payments provide an option to claim the credits early from the estimated amount of the Child Tax Credit. Taxpayers can claim up to 50% of the estimated credit that you may properly claim on your 2021 tax return during the 2022 tax filing season. 

Going through different forms and documents is always a hassle for taxpayers especially when the deadlines are nearing. IRS Audit Group in Los Angeles facilitates your tax filing through its certified IRS attorneys. Get a free consultation with one of our staff members to help us understand your needs. Telephone Number: (310) 498-7508 or email us at [email protected].

It is that time of the year when the tax return is due.  The deadline for submitting tax return for the year 2021 is April 18, 2022.  Those who requested an extension will have until October 17, 2022, to file their full 2021 tax return.  Filing a tax return sometimes turns out to be a confusing process for quite a few.  It happens mostly if the rules and deadlines have changed slightly over the previous year.  It’s a good idea to get it straight so you know exactly what to file and when.

Now, there is a reminder from the IRS for those who have yet to file under several provisions of the American Rescue Plan, and it will have an impact on their 2021 tax return.  More than two-thirds of the tax cuts and direct payments go to families earning less than $90,000 a year, making it one of the most progressive pieces of legislation in history.

How the American Rescue Plan affect taxes in 2021

The ARPA’s (American Rescue Plan Act of 2021) impact will be felt primarily on the 2021 tax return, as many of the provisions were designed to provide tax relief to taxpayers dealing with the effects of COVID-19 in 2021.  The tax provisions primarily expand on current Tax Code provisions, with few exceptions.

Stimulus Payments

Families will get payments from the government for every qualified dependent child listed on their tax returns, not just those under the age of 17.  Importantly, Stimulus funds are available to the US residents and Green Card holders living abroad.  The first two installments can be claimed as a refund in the 2020 federal tax return.  The third payment can be claimed on the 2021 federal tax return if they are not received automatically.  For expats, this is excellent news.

Child and Dependent Care Credit

For 2021, ARPA made significant changes to the child and dependent care credit.  The credit will be a refundable credit on the 2021 tax return, which will benefit low-income taxpayers significantly.  For more details visit:

https://www.irs.gov/credits-deductions/individuals/child-and-dependent-care-credit-information

Earned Income Tax Credit

For low-income individuals, there is an extension of the Earned Income Tax Credit.  As well as raising the income cap and expanding the beneficiary age bracket, it hopes to raise the credit limit for childless adults from around $530 to close to $1,500.  Check if you qualify using IRS virtual assistant:

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant

Unemployment Benefits Exclusion

The American Rescue Plan improves unemployment insurance to make it easier for workers to receive benefits.  Unemployment compensation is available for periods ranging from 24 to 53 weeks, while unemployment assistance is available for periods ranging from 50 to 73 weeks.

Forgiven Student Loans are Excluded

The legislation includes a broader exclusion for forgiven student loans that apply to loans discharged after 2020 but before 2026.

It is important that you file your tax return 2021 before the deadline.  It means you will not face financial penalties for late filing and that you will be able to keep up with payments.  Even if you do not feel you have enough money to pay your entire tax return, filing early and paying as much as you can afford will save you money in the long run.

IRS Audit Group can assist you in filing your tax return by analyzing all the eligibility criteria to your benefits in reducing tax payable.  Contact us for a free consultation: https://irsauditgroup.com/contact/

Telephone Number: (310) 498-7508

[email protected]

IRA or the Individual Retirement Account will help lower your taxable income for the tax season 2022. IRA is easy to set up, and it allows to save for retirements with tax-free benefits. One can open a traditional IRA from a bank, brokerage, mutual fund, or insurance company. The money saved in this account can be used to invest in stocks, bonds, mutual funds, exchange-traded funds, and other approved investments.

As we know, IRA is an individual-owned account that provides more flexible benefits than the 401(K) plans.  The 401(K) plans are sponsored by employers.    The employer has the right to change the plan or limit the investment options.

Traditional IRA vs. Roth IRA

These are two common IRAs that an individual can set up to contribute to their retirement savings. The important difference between these two is traditional is tax-deferred and Roth is tax-free.

Traditional IRA: The contribution is deductible from your tax return. The earnings grow tax-deferred until you withdraw them upon retirement. But the withdrawals are taxable as income after age 59½. There is also a 10% IRS penalty tax in addition to current income tax if the withdrawal is made before 59½. Individuals with a low tax bracket at the time of retirement or taking withdrawals can use a traditional IRA.

Roth IRA: Savings for Roth IRA is contributed after the tax is paid. But the withdrawal is penalty-free and tax-free after the age of 59½. Still, one needs to wait at least five years to withdraw the savings from Roth IRA.

What has been changed for the tax year 2022?

The contribution limit for tax season 2022 is not changed from the previous year for the IRA, but the adjusted gross income (AGI) has been increased like every year. One can contribute a maximum of $6,000 in the tax year 2022 if you are below the age of 50. An additional contribution of $10,00 is allowed for individuals older than 50. But the contributions for the 401(k)s and 403(b)s plans that are provided by employers for the tax season 2022 have been increased. For the retirement savers younger than 50, the maximum contribution limit has been set as $20,500 in 2022, an increase of $1,000 from 2021. Those 50 and older can add an extra $6,500 (same as 2021) — for a maximum contribution of $27,000 in 2022.

The AGI limits for the tax year 2022 on Traditional IRA tax deduction are summarized below

The AGI limits for the tax year 2022 on Roth IRA tax contribution are summarized below

The savings on an IRA can help build sizable retirement savings. It gives more investment options and choices while having benefits like tax-deductible and tax deferral. Take advantage of this terrific opportunity and jump-start your IRA account. Taxpayers can contribute to an IRA for the 2021 Tax Year until the tax deadline (April 18, 2022).

Call our consultants with IRS Audit Group, Telephone Number: (310) 498-7508 for more information and to find out if you are eligible to contribute. Let us help you establish your retirement funding plan today.

[email protected]

As the Tax season for 2021 is nearing, it is good to have a basic understanding of the recent adjustments in tax structure, exemptions, and credits.  Such info will help taxpayers to plan and file tax returns in time.  Every year, the Internal Revenue Service (IRS) updates tax rates, rebates and thresholds that are adjusted with the annual inflation. On Nov. 10, 2021, the IRS announced inflation adjustments for 2022 affecting standard deductions, tax brackets, and more.

Thus, the Tax Filing Year 2022 got many updates that are listed in detail by IRS in this document. It is important to discuss a few such changes that need spotlight among every taxpayers which are listed below.

1. Child Credit on Monthly Basis

Child Tax Credit provides financial benefits to those with qualifying kids. For those Tax Years before 2021, the IRS allowed claim up to $2,000 per child under the age of 17 in Tax Filing.  However, during the Tax Year 2021, the following changes were done.

• Child tax credit amount has increased up to $3,600 per child under 6
• Child tax credit amount has increased up to $3,000 per child ages 6 to 17
• Child tax credit is now fully refundable.
• Child tax credit has been converted to monthly payment

As the COVID-19 has negatively impacted the country’s economy and the taxpayers, the IRS provided 50% of the child tax credit as advance monthly payments during the period July to December 2021. Tax filers may need to repay if they received more than the eligible pay.  Similarly, those who received lesser credit can file and claim back. Thus, the expanded child tax credit payments could impact many families’ tax refunds. For more specific details, please be guided by the IRS government portal

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

2. Recovery Rebate Tax Credit

Recovery Rebate Tax Credit or Stimulus Payment is another benefit in case you haven’t received the third economic impact payment while preparing Tax Filing. Those who lost jobs or whose income drastically decreased in 2021 can now claim the Recovery Rebate Tax Credit. Here are the eligibility criteria to receive the economic impact payment.

• You’re not dependent of a taxpayer
• Your adjusted gross income (AGI) can’t exceed:
• $150,000 for married filing jointly
• $112,500 for heads of household
• $75,000 for single filers

One must file 2021 Tax Return to receive the Recovery Rebate Tax Credit even if not done Tax Filing or any tax return in the past. You can use any one of IRS’ Free File Providers from the list given.

Note: You must have AGI of less than $73,000 to use the IRS’ free file program.

Learn more from IRS official website below

https://www.irs.gov/coronavirus/economic-impact-payment-information-center

3. Claim Charitable Donations

For the Tax Year 2021 Tax filing, the claims on Charitable Donations are changed with the increase in tax deductions. Taxpayers both individuals who itemized and those who do not itemize can avail such benefits of these deductions while filing the return.  Now, the tax filers can deduct up to $300 for cash donations to qualifying charities (up to $600 combined for married filers) whether you itemize or take the standard deduction for 2021.

Those who claim charitable contributions as itemized deductions can claim cash contributions made to qualifying organizations up to 100% of their adjusted gross income (AGI) for the 2021 tax year only. Such deductions used to be limited to 60% of the taxpayer’s AGI. More specific info can be found at https://www.irs.gov/about-irs/the-irs-encourages-taxpayers-to-consider-charitable-contributions

IRS Audit Group continues to monitor the tax provision updates every year and highlights important changes that benefit the taxpayers in Tax Filing. We are certified tax lawyers having immense experience in state and federal tax laws. Get a free consultation with us to understand your tax problems and help you deal with IRS on this upcoming Tax season 2022. Telephone Number: (310) 498-7508 (or) [email protected]

RMD (Required Minimum Distributions) is an important part in everyone’s retirement income planning process. As we are approaching the end of the year it is important to remind about the deadlines associated with RMD withdrawals. In order to avoid tax penalties from IRS, withdraw your RMD’s on time from certain retirement accounts. Yes, tax audit can be done by the IRS for the non-withdrawal IRA accounts because withdrawals will be subject to federal income tax. The deadline to withdraw the RMD amount is December-31 2019.

To enjoy the golden years after retirement, the IRS is providing options to invest in a variety of tax-advantaged retirement accounts. The types Of Individual Retirement Accounts (IRA) can be as follows:

Traditional IRA

This type of individual retirement account will allow your earnings grow tax deferred. There are some advantages and limits in traditional IRA plan. Individuals will be able to deduct the entire amount of the IRA contribution if not covered by retirement plan by the employers. There is no income limit for this plan. You can invest in traditional IRA plan, no matter how much you earn. But one cannot make contribution after the age of 70.5 years. You should begin to take the RMD amount from your account by April 1 of the calendar year following the year you reach the age of 70.5. Failures to withdraw, the IRS will audit your account and can impose a whopping penalty of 50% from the minimum amount to be withdrawn.

Simplified Employee Pension (SEP) IRA

This is a plan for those who are self-employed, own a business, employs others or earn freelance income. Generally, employers will be contributors of SEP IRA but employees also be able to make traditional contribution to SEP IRA. Employees can participate only if they are 21 or older and should earn at least $600 in the tax year, and worked with the employer in at least 3 of the past 5 years.

Simple IRA

Simple IRA is a retirement plan offered by small businesses up to 100 employees. Distribution can be taken within 2 years of opening the plan. In simple IRA, the employer can match the contribution of employees up to 3% of salary. When the employee not chooses to participate in the plan, then the employer can make the contribution of a flat 2%. Compared to other retirement plans, simple IRA plan offers lower startup and annual costs.

You can estimate the current and future year’s RMD amount with a simple calculation. It is determined by the prior year’s December 31^st IRA account balance. Then check the distribution period based on your age. The account balance should be divided by the distribution factor you found based on your age. Online RMD calculators also available to calculate the amount you can withdraw from your RMD account.

IRS Audit Group’s resolves your tax issues faced during the IRS Audit. Through the RMD’s IRS will collect the tax from your income and investment gains. If you have any questions regarding RMD’s, the different IRA plans, to know how the RMD amount is calculated and to avoid the tax penalties for your RMD accounts by the IRS we can help you to resolve with our efficient tax experts. We also offer Tax Audit Representation Services for all your tax dispute cases, Contact us for free consultation

[email protected]/Telephone Number: (310) 498-7508

It is time for getting prepared for Tax season.  The tax season is to start around late January 2020 and last until mid of April.  April 15, the last day to file taxes, is called Tax Day.  There are few steps one needs to initiate to ensure in handling the tax season and to avoid the chances of an IRS tax audit.  When it comes to tax filing, every taxpayer will become anxious due to the complexity of filing their tax returns, and the need to ensure accuracy in all data to file.

Here are a few tips which help you make one fully prepared for the 2020 tax season:

Organize and figure out the forms you need

Get organized by keeping each of your income and expenses sources in a digital or printed format to avoid confusion.  This will help to maximize the chances of filing the taxes accurately.  There are many different tax forms based on individual type or businesses source of income and expenses.  If you are unsure which form suits your financial background it is good to consult a tax professional.

Gather all your receipts

If you are organized with all your receipts and records, it will take less time for the tax preparer to process your taxes.  To avoid a last minute scramble, it is essential to store all your receipts in same place throughout the year. It will help the taxpayer who wants to itemize deductions instead of claiming standard deductions.  IRS also expects every taxpayer to keep record of any receipts or documents that can be shown later if IRS initiates any tax audit.

List out your personal information

Now, the time has come to take out your pencils and calculators (or a smartphone!).  As a first step, list all personal details like Social Security Number along with the other information of each dependent you claim your tax preparer likely to need.  If you own any kind of properties, write down such addresses.  If you have bought or sold any property in the past year, note the dates you sold and bought and also the amount you originally paid and the amount you received from the sale.

Option to file for an extension

If you are not fully prepared then there is an option to seek extension of filing.  Such extension is needed in a situation when a taxpayer is in a stressful life event.  And you can request for an extension if you need more time to complete the tasks like preparing your documents and receipts.  However, you’ll still need to estimate the tax amount you owe and pay that amount by the regular April 15 deadline.

The IRS recommends you to review your W-4 every year to add or remove any of your family members.

Keep a copy of your previous year’s return

If you are planning to find a new tax preparer for this year, then the previous year information will help them.  Keeping all the records will save your time and money either you hire a tax professional or preparing by yourself.  One needs to stay up-to-date as possible on the tax breaks that are available for the year 2020.  The earlier you start preparing for tax season, the easier the process will be.

As the tax season for 2020 is approaching, it is the right time to get ready in preparing for the taxes.  It is critically important for a tax payer to choose a reputable tax audit service provider.

IRS Audit Group is a tax audit representation service provider for all your tax dispute cases.  We defend our clients by representing them in front of IRS agents.  We know the taxpayers’ rights during the Tax Audit and help them to bring mutual solutions between IRS and the taxpayers.  Get free consultation from one of our tax experts.

Contact Us: [email protected]/Telephone Number: (310) 498-7508

Tax season is over and now the waiting for tax refund.  Tax refund is issued when you pay more to the state government or federal government than the amount you actually owed.  Taxpayers those who over paid their taxes can expect to get tax refund.  Tax refund is not free money; it’s already paid by the taxpayers.  The IRS says that most of the tax refunds are delivered within 21 days of filing.  Tax filers can be able to track their status of the refund to know when their refund will arrive by using “Where’s My Refund?” tool at IRS.gov or by using the IRS2Go app.

If it has been more than 21 days or more than six weeks since you have filed for the tax refund, then you can contact IRS.  In certain times, IRS may hold onto your refund if you have certain outstanding debts.  Paying those outstanding debts on time will ensure that you get your entire refund on time.  According to IRS, if you use e-file or direct deposit you will get your refund faster.

What factors can delay your tax refunds?

Your tax refund may get delay for any of the following reasons.

• The numerical errors and mistakes in your tax return can slow down the process of tax refund. This will add days or weeks to the refund processing time by the IRS
• IRS wouldn’t be able to process your tax return, if you miss to enter any information. This incomplete tax return also will make you to wait for a long time for the tax refund
• When someone uses your personal information to file a fraudulent tax return and claim refund in your name. In the case of tax fraud you are encouraged to contact the IRS to report the fraud
• If you transposed a digit in your account number then the refund will be sent to the wrong account. In this cases IRS can’t compel the bank to turn over the money to you
• If IRS thinks your tax deductions and credits are manipulated or inaccurate, refund will be hold and IRS can initiate a tax audit. You may require a professional or tax attorney to represent you in the audit.

Deadline to claim the Tax Refund

To claim any refund from the IRS you will get three years of time from the date of original deadline of your tax return.  Your refund will expire and goes away forever if you wait longer than the deadline because the statute limitations for refund claiming will be closed.  When a refund expires, the federal government will keep the money and consider it as an ‘excess collection’.  That excess money can’t be sent to the taxpayer but it can be used as a payment toward a future tax year.

It is important to research your IRS account when the IRS takes or holds your refund.  This will help you to get the reasons of the issue and clear up any confusion with the IRS.

If you are facing issues with your tax refund due to IRS audit, it is important to contact a tax lawyer to understand your rights and seek solution accordingly.  IRS Audit Group tax professionals can help you by dealing directly with the IRS to solve the tax refund issues.  Our tax professionals will review your account transcripts to complete the tax history.  Telephone Number: (310) 498-7508 for free consultation or email us at [email protected].

Now it’s the time for employers to initiate discussion about 2020 healthcare plans.  Thus it is important to choose the best health care plan that suits you and your tax saving plans.  There are two types for tax-free health care plans that are provided by IRS as HSA (health savings account) and FSA (flexible spending account or arrangement).  Both have the benefits of tax savings but in different ways.

What is Health Savings Account (HSA)?

HSA plans are provided by the employers or through banks and other financial institutions, if your employer does not provide health insurance.  Therefore, both working persons and self-employed individual are eligible to contribute to HSA. HSA is not owned by the employer.  Both working and self-employed individuals need to sign in for HDHP (High Deductible Health Plan) to become eligible to contribute to HSA.  HDHP are types of health insurance plans that has low premium with high deductibles.  Many insurance companies offer such plans along with the option to open HSA.

The HSA’s contribution is eligible for tax deduction while filing for returns if you are opening the account from private insurance companies.  If your employer offers an HSA, you’d likely fund it pretax from your paycheck but it can be tax-deductibles also.  Also, the HSA contribution can be used for other investments like stocks, bonds etc.  which are also tax-free.

For the year 2020, one can contribute up to $3,550 for self-only coverage, and up to $7,100 for family coverage into an HSA.  The minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family for the year 2020.  This is an increase of $50 and $100 respectively from the year 2019.  Further, HSA dollars are carry-forwarded year-after-years if it is not spend.

What is Flexible Spending Arrangements?

This type of account is only available to the working people under an organization and not eligible for self-employed individuals.  Flexible spending is provided through employers and cannot be transferred when you leave that company.  It is not mandatory for all the employers to offer FSA.  Employers deduct the FSA contribution from the paychecks before taxes in regular increments.

IRS set the FSA contribution for the year 2020 as $2,750 which is not subject to federal income tax, Social Security tax or Medicare tax.  The FSA contribution can be used for own medical expenses, child care and dependent care.

The FSA amount cannot be rolled over to the next year plan, and hence it has to be used in the same year.  However, IRS offers two options as grace period and carry-over option.  The grace period let you to incur eligible expenses for two and half months from the end of the current year plan.  The carry-over option allows the employee to carry-over unused money with maximum of $500 to the following year.  But individuals can only available either of one option or none.

Choosing between HSA and FSA can become stressful if one does not pay attention to the real benefits both offers.  HSA seems a flexible plan but the HDHP will have high out-of-pocket limits whereas FSA have limited options.  It is important for any individual to choose the right health care plans based on the availability from your employers, your health conditions, planned amount for contribution etc.

Both HSA and FSA are subjected to IRS audit.  Therefore it is advisable to keep all the receipts that are spent using HSA and FSA money.  IRS Audit Group is the tax audit representation firm in California that defends you in front of the IRS for any tax audit disputes.  We are enrolled agents, CPAs and tax attorneys offering tax audit and state audit representation services.  Contact us for free consultation – [email protected]/Telephone Number: (310) 498-7508