As we navigate a world with COVID-19, large swings in the stock market have become the norm. Many buy and hold-style investors are more actively managing their portfolios to take advantage of these swings. The IRS has a special trader status for taxpayers who frequently engage in trading. This status includes a special accounting method, not available to the average investor, that can come with substantial tax savings. The status allows an investor to make special deductions and opens the door to a wide range of tax reduction strategies unavailable to the casual investor. However, with potential savings also come risks that could end up costing the taxpayer/trader more than the average investor. Weighing the pros and cons of this status is crucial in minimizing tax liability. The big question for tax planning is this — does obtaining trader tax status result in less tax?
Make Tax Magic with a Health Savings Account
Congress created one of the best tax savings vehicles in 2003. It wasn’t the individual retirement account (IRA). It wasn’t the Roth IRA.It was the health savings account (HSA). The HSA is the only tax-preferred savings vehicle in which a taxpayer potentially gets both an upfront tax deduction in addition to tax-free and penalty-free distributions.
The IRS wrote the HSA rules to give taxpayers maximum flexibility in how they use their HSAs for medical expenses. Strategic use of the HSA can lead to lifelong tax savings opportunities.
Let’s review the basic rules as to how an HSA operates, the little-known rules that create tax savings opportunities, and examples of how the HSA can be used to provide tax-free and penalty-free distributions when the taxpayer has a cash need.
