- HEALTH SAVINGS ACCOUNT (HSA) -are like personal savings accounts, but the money in them is used to pay for health care expenses. “A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs.” https://www.healthcare.gov/glossary/health-savings-account-hsa/
- Pros:
- The ability to pay for medical expenses with pre-tax money.
- The option to build retirement savings that can be used at any time without taxes or penalties. Once you turn 65, the funds can be used for anything.
- Contributions reduce taxable income
- Contributions made to your HSA by your employer may be excluded from your gross income.
- Cons
- High deductible
- May not be a good idea if you know you will be needing expensive medical care in the near future.
- Pros:
- COVERDELL EDUCATION SAVINGS ACCOUNT (ESA) – According to the IRS, is a trust or custodial account set up in the United States solely for paying qualified education expenses for the designated beneficiary of the account. This benefit applies not only to qualified higher education expenses but also to qualified elementary and secondary education expenses.
- When the account is established, the designated beneficiary must be under the age of 18 or be a special needs beneficiary.
- Contributions must be made in cash, and they’re not deductible.
- Any individual whose modified adjusted gross income is under the limit set for a given tax year can make contributions.
- Organizations, such as corporations and trusts can also contribute regardless of their adjusted gross income.
- Contributors must contribute by the due date of their tax return (not including extensions).
- There’s no limit to the number of accounts that can be established for a particular beneficiary; however, the total contribution to all accounts on behalf of a beneficiary in any year can’t exceed $2,000.
- In general, the designated beneficiary of a Coverdell ESA can receive tax-free distributions to pay qualified education expenses. The distributions are tax-free to the extent that the amount of the distributions does not exceed the beneficiary’s qualified education expenses. If a distribution exceeds the beneficiary’s qualified education expenses, a portion of the earnings is taxable to the beneficiary
- Amounts remaining in the account must be distributed when the designated beneficiary reaches age 30 unless the beneficiary is a special needs beneficiary. Certain transfers to members of the beneficiary’s family are permitted. https://www.irs.gov/taxtopics/tc310
- 529 PLANS – Similar to Coverdell ESA except there is no age limit, no annual contribution limit, or income restrictions (other than gift-tax limitations), and can be used to pay student loans up to $10,000 per year.
- Disadvantages – can only be used for tuition costs of $10,000 per year. Also, limited flexibility in investment choices – a limited number of stock and bond mutual funds.
- “The majority of people who buy 529 accounts do so through an advisor, rather than through a state program that sells them directly, the by-far cheaper option.” https://www.accountingtoday.com/news/tax-advantaged-529-plans-are-popular-with-wealthy-investors-who-are-saving-for-their-kids-education-but-they-can-have-their-drawbacks?position=editorial_10&campaignname=ACT%20Tax%20Practice-05272021&utm_source=newsletter&utm_medium=email&utm_campaign=V2_ACT_TaxProToday_20210503%2B%27-%27%2B05272021&bt_ee=a3Z9qVMcB%2B55Rp89%2BUucDzGz4K1BiiyhQaxnW4ouNMr4vXHXs8uftGIQCYjqhSYz&bt_ts=1622131305521
- OPPORTUNITY ZONES – Introduced as part of the Tax Cuts and Jobs Act in 2018.
- economic development tool to encourage long-term investment and job creation in designated, distressed communities
- investment encouraged by providing tax benefits to Investors that invest the number of eligible gains into equity in Qualified Opportunity Funds
- Taxpayers can defer and potentially reduce taxation on capital gains
- 8,764 designated Qualified Opportunity Zones.
- Qualified Opportunity Zones have been designated in all 50 states, including Alaska, Hawaii, the District of Columbia, and 5 US Territories.

- BLOGS, TIKTOK, INSTAGRAM, YOUTUBE videos – Monetize your knowledge through monthly subscriptions, short videos, reels, or paid content.
Ma launched her channel in 2010 and has amassed multiple videos with over 1 million views. Ma broke down her earnings to Insider from the YouTube Partner Program by month.
So far in 2021, she’s grossed $32,200 from her YouTube channel.
https://wealthgang.com/how-much-money-can-you-make-on-youtube-with-1-million-subscribers/
Capital Gains Tax
As mentioned before, the appeal of passive income is any profit or gain from a sale is subject to capital gains tax. Capital assets include stocks, bonds, precious metals, jewelry, and real estate. Short-term capital gains are taxed at the same rate as your ordinary income. These are assets held less than one year before sale. Long-term capital assets are held for more than one year before they are sold. Long-term capital gains are taxed according to graduated thresholds for taxable income at 0%, 15%, or 20%. (2)
*Note – President Biden is reportedly proposing to raise taxes on long-term capital gains for individuals earning $1 million or more to 39.6%. Added to the existing 3.8% investment surtax on higher-income investors, the tax could rise to 43.4%, not counting state taxes.
One strategy to consider if you make large contributions to charity consider donating appreciated long-term held securities (i.e., stocks, bonds, options, futures). You would get a charitable deduction for the fair market value of the securities and not have to report the capital gain/loss income (see Tax Tips). (Cont’d)