A health savings account (HSA) is tax-advantaged medical savings account that you can use to pay for qualified medical expenses. Opening an HSA is a smart financial move. Not only are contributions tax-deductible, but growth is tax-deferred, and spending from the account is tax-free.

But like all situations that involve tax advantages, you must report HSA activity during tax season. Not sure where to start? We have you covered.

Getting the Appropriate Tax Forms

The first step is to obtain tax form 8889. This document is exclusively for reporting HSA contributions. It also helps you figure out deductions, report distributions, and more. The form will also let you know how much you must pay if you open an HSA and are not eligible. If you would like to know about tax form 8889, visit this website.

Part 1

The first part of form 889 is for figuring out your tax deductions. Fill out lines 1 through 13.

If you are single and have an individual plan, follow the instructions. The same goes for couples with individual HSAs. But if you and your spouse file jointly and are both eligible, the IRS typically treats the situation as a family plan.

Read each line item and answer the questions truthfully. Line 2 is where you will include the amounts contributed to the HSA. If you're over 55, Line 7 covering additional contribution amounts may apply.

Part 2

The second part of tax form 8889 is for distributions. The first line of this section is where you enter your total HSA distributions. These include purchases made with a debit card and any amount withdrawn. The total should only include qualified medical expenses.

Part 3

The final part of the HSA tax form concerns penalties and additional taxes you might have to pay for failing to remain HSA eligible. This section can get complicated, so read each question carefully and provide the requested information.

If you have trouble reporting your HSA, don't hesitate to contact a tax professional. An HSA can make your taxes more complex, and a filing expert will ensure that you report everything correctly.

Read a similar blog about HSA investment tips here at this page.