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No double dipping for flex spending accounts

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. If my FSA covers medical expenses, can I also deduct them on my tax return? C.D.R., San Diego

A. No. The tax law doesn’t allow a double tax benefit in this situation. The pretax contributions you make to a flexible spending account (FSA) may be withdrawn tax-free to pay for qualified medical expenses. So you save tax on the contribution amounts, but you can’t then deduct those medical expenses.

Most high-income taxpayers come out ahead with an FSA because of the medical deduction threshold of 7.5% of adjusted gross income (AGI).

Tip: The medical deduction threshold will increase to 10% of AGI in 2013 under the new health care law. Also, contributions to a health care FSA will be capped at $2,500, beginning in 2013 (indexed for inflation thereafter).

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