The IRS has released guidance that includes the 2024 inflation-adjusted amounts for Health Savings Accounts (HSAs). The benefits of HSAs include: contributions are made on a pretax basis; funds can be withdrawn tax-free to pay for a variety of medical expenses, such as doctor visits, prescriptions, chiropractic care and long-term care insurance premiums; and HSAs are “portable,” meaning the account stays with the employee even if he or she changes jobs or leaves the workforce.

What Exactly Is an HSA?

An HSA is a trust created exclusively for the purpose of paying the qualified medical expenses of the account holder and his or her family if a family plan is obtained. To be eligible, an individual must be covered under a high deductible health plan (HDHP, defined below). Participants in an HSA cannot be enrolled in Medicare or have other health coverage, though there are exceptions, which include dental, vision, long-term care, accident and specific disease insurance.

Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.

Inflation Adjustments for Next Year

In Revenue Procedure 2023-23, the IRS released the 2024 inflation-adjusted figures for contributions to HSAs, which are as follows:

Annual Contribution Limitation. For calendar year 2024, the annual contribution limitation for an individual with self-only coverage under a HDHP will be $4,150. For an individual with family coverage, the amount will be $8,300. This is up from $3,850 and $7,750, respectively, in 2023.

There’s an additional $1,000 “catch-up” contribution amount for those age 55 and older in 2024 (and 2023).

HDHP Defined. For calendar year 2024, an HDHP will be a health plan with an annual deductible that isn’t less than $1,600 for self-only coverage or $3,200 for family coverage (up from $1,500 and $3,000, respectively, in 2023). In addition, annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) won’t be able to exceed $8,050 for self-only coverage or $16,100 for family coverage (up from $7,500 and $15,000, respectively, in 2023).

Contact your employee benefits and tax advisors if you have questions about HSAs at your business.

Video Feature

Brittany Leonard, CPA

Get to know Brittany Leonard a Partner in our La Crosse, WI. In this video, she shares some helpful financial tips.

Effective October 1, 2023, a significant change is set to take place in Wisconsin's sales tax landscape, thanks to the 2023 Wisconsin Act 19. This legislative amendment, which modifies section 77.61(4)(c) of the Wisconsin Statutes, introduces a revised retailer's discount structure. In this article, we will delve into the specifics of this change and its potential impact on businesses and tax reporting.

Understanding the Retailer's Discount

For businesses involved in the reporting and collection of sales taxes, one critical aspect to consider is the retailer's discount. This discount allows retailers to deduct a portion of the sales tax they have collected and reported on a timely sales and use tax return. This serves as an incentive for businesses to comply with tax regulations while providing them with some relief on their tax liabilities.

The Enhanced Retailer's Discount

Under the provisions of the 2023 Wisconsin Act 19, the retailer's discount is set to undergo a transformation. Prior to this change, businesses could deduct 0.5 percent of the total sales tax amount reported on their returns. However, the new legislation increases this discount rate to 0.75 percent. This adjustment will have a direct impact on the amount of relief that businesses can expect to receive when fulfilling their tax obligations.

The legislation also raises the cap on the retailer's discount that can be claimed. Previously, businesses were limited to a maximum deduction of $1,000 on their sales and use tax returns. Now, with the revised rules in place, this cap is elevated to an impressive $8,000. This means that businesses can potentially save a substantial amount on their tax liabilities through this enhanced discount.

How the Retailer's Discount is Calculated

To gain a better understanding of how this retailer's discount works, it's important to examine the calculation method. The discount is computed based on the total sales tax amount reported. The specifics of the calculation are as follows:

• For sales tax amounts ranging from $0 to $10, businesses are entitled to a discount equivalent to the total sales tax collected during that reporting period.
• If the total sales tax falls within the range of $10 to $1,333, a fixed discount of $10 is applied.
• For sales tax amounts exceeding $1,333, businesses can calculate their discount by multiplying the total sales tax amount by 0.0075. However, it's crucial to note that this discount cannot surpass the newly established cap of $8,000 per reporting period.

Implications for Businesses

The enhancements made to Wisconsin's retailer's discount bring several advantages for businesses. First and foremost, the increased discount rate of 0.75 percent provides businesses with greater tax relief, potentially reducing their tax burden significantly. Additionally, the higher cap of $8,000 means that larger retailers with substantial sales volumes can benefit substantially from this change.

The 2023 Wisconsin Act 19 introduces a favorable alteration to the retailer's discount structure, benefiting businesses across the state. By raising the discount rate to 0.75 percent and increasing the maximum cap to $8,000, Wisconsin aims to support businesses in their tax compliance efforts while easing their tax liabilities. Come October 1, 2023, businesses should take full advantage of these changes to optimize their tax reporting and collections strategies.

Podcast

Boost Your Business with Specialized Reports

In this episode, Jeff Dvorachek discusses three essential reports that can help business owners stay on track with their goals. 

Discover how customer detail reports, vendor reports, and job-specific division reports can provide valuable insights for your business's success. It's easy to get caught up in day-to-day activities, but these reports can keep you informed and ensure continued success.

So many of the documents we all use in our personal lives these days are digital. However, there are still many that you should retain as hard copies. These include birth, marriage and death certificates; Social Security cards; tax returns; passports; and estate planning documents, such as deeds and wills.

Be sure to safeguard these records from physical harm — literally. If you’re going to keep them at home, invest in a safe that’s both fireproof and waterproof. Better yet, consider storing them or copies of them in a safe deposit box at a reputable bank.

You can keep digital documents in a safe or safe deposit box as well. Save them on a password-protected device such as a flash drive or external hard drive and add them to your protected paper files. Of course, you can store digitized documents in the cloud, but it’s a good idea to have “redundant backups” in case the cloud service fails or gets hacked.

If you do invest in a fireproof, waterproof safe, consider stashing some cash in it as well. In the event of a major disaster, ATMs may not work, and banks could close for an extended period. Exactly how much you should set aside depends on your risk level and your need for basics such as food, lodging, medical supplies, gasoline and groceries.

Do you and your spouse together operate a profitable unincorporated small business? If so, you face some challenging tax issues.

The Partnership Issue

An unincorporated business with your spouse is classified as a partnership for federal income tax purposes, unless you can avoid that treatment. Otherwise, you must file an annual partnership return, on Form 1065. In addition, you and your spouse must be issued separate Schedule K-1s, which allocate the partnership’s taxable income, deductions and credits between the two of you. This is only the beginning of the unwelcome tax compliance tasks.

The Self-Employment (SE) Tax Problem

The SE tax is how the government collects Social Security and Medicare taxes from self-employed individuals. For 2023, the SE tax consists of 12.4% Social Security tax on the first $160,200 of net SE income plus 2.9% Medicare tax. Once your 2023 net SE income surpasses the $160,200 ceiling, the Social Security tax component of the SE tax ends. But the 2.9% Medicare tax component continues before increasing to 3.8% — thanks to the 0.9% additional Medicare tax — if the combined net SE income of a married joint-filing couple exceeds $250,000.

With your joint Form 1040, you must include a Schedule SE to calculate SE tax on your share of the net SE income passed through to you by your spousal partnership. The return must also include a Schedule SE for your spouse to calculate the tax on your spouse’s share of net SE income passed through to him or her. This can result in a big SE tax bill.

For example, let’s say you and your spouse each have net 2023 SE income of $150,000 ($300,000 total) from your profitable 50/50 partnership business. The SE tax on your joint tax return is a whopping $45,900 ($150,000 x 15.3% x 2). That’s on top of regular federal income tax.

Here are some possible tax-saving solutions.

Strategy 1: Use an IRS-Approved Method to Minimize SE Tax in a Community Property State

Under IRS Revenue Procedure 2002-69, for federal tax purposes, you can treat an unincorporated spousal business in a community property state as a sole proprietorship operated by one of the spouses. By effectively allocating all the net SE income to the proprietor spouse, only the first $160,200 of net SE income is hit with the 12.4% Social Security tax. That can cut your SE tax bill.

Strategy 2: Convert a Spousal Partnership Into an S Corporation and Pay Modest Salaries

If you and your unincorporated spousal business aren’t in a community property state, consider converting the business to S corporation status to reduce Social Security and Medicare taxes. That way, only the salaries paid to you and your spouse get hit with the Social Security and Medicare tax, collectively called FICA tax. You can then pay modest, but reasonable, salaries to you and your spouse as shareholder-employees while paying out most or all remaining corporate cash flow to yourselves as FICA-tax-free cash distributions.

Strategy 3: Disband Your Partnership and Hire Your Spouse as an Employee

You can disband the existing spousal partnership and start running the operation as a sole proprietorship operated by one spouse. Then hire the other spouse as an employee of the proprietorship. Pay that spouse a modest cash salary. You must withhold 7.65% from the salary to cover the employee-spouse’s share of the Social Security and Medicare taxes. The proprietorship must also pay 7.65% as the employer’s half of the taxes. However, since the employee-spouse’s salary is modest, the FICA tax will also be modest.

With this strategy, you file only one Schedule SE — for the spouse treated as the proprietor — with your joint tax return. That minimizes the SE tax, because no more than $160,200 (for 2023) is exposed to the 12.4% Social Security portion of the SE tax.

Find Tax-Saving Strategies

Having a profitable unincorporated business with your spouse that’s classified as a partnership for federal income tax purposes can lead to compliance headaches and high SE tax bills. Work with us to identify appropriate tax-saving strategies.

Student On-Campus Events

Our recruiter and accounting professionals will be attending the following college career fairs and on-campus events. At these events, students will grow their network and explore career opportunities. Our team will be available to answer any questions and help guide students through the application and interview process.

Which Business Website Costs Are Deductible?

Discover the tax rules for website expenses in 2023! Learn how to maximize deductions for hardware and software costs. Don't miss out on potential savings.

An "Innocent Spouse" May Be Able to Escape Tax Liability

Protect yourself from joint tax liabilities! Learn about innocent spouse relief, election to limit liability, and injured spouse claims. Don't wait, safeguard your finances today. 

Receive More Than $10,000 in Cash at Your Business? Here's What You Must Do

Don't overlook IRS cash reporting requirements! If your business deals with large cash transactions, you must file Form 8300. Learn about the definition of "cash," reporting reasons, and electronic filing options. Avoid fines and legal trouble.