2005 Tax Savings Tips

Tax

In the last few years, numerous tax law changes have been introduced that affect individuals. This guide provides information about these changes and important new tax law provisions to help you prepare your return and minimize your 2005 tax bill.

Health Savings Accounts (HSAs)

Individuals not eligible for Medicare may be able to take advantage of health savings accounts (HSAs). Used in combination with a high deductible health insurance plan (an annual deductible of at least $1,000 for individuals and at least $2,000 for family coverage), HSAs are tax-favored savings plans in which individuals make deposits to pay qualified health expenses.

Employers can also contribute to HSA plans on behalf of employees. Contributions are tax-deductible and earnings and interest grow tax-free. Distributions are not taxable as long as the funds are used to pay for qualified medical expenses.

Contributions are limited to the lesser of the health plan's annual deductible or $2,650 for individuals and $5,250 for families. Unused contributions and earnings can be carried forward to pay for future years' medical expenses.

Tax benefits extended

• The maximum child tax credit is $1,000 per child for tax years 2005