Year-End HSA & FSA Tax Planning: What You Should Know Before December 31

As we close out the year, many taxpayers forget one of the most impactful—and often overlooked—tax planning areas: Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). With the “One Big Beautiful Bill Act” introducing several changes and with 2025 contribution limits now finalized, year-end planning is more important than ever.

At Velin & Associates, Inc., our clients—from YouTubers, TikTok creators, Shopify sellers, Amazon businesses, doctors, dentists, and even high net worth individuals—frequently come to us in December scrambling to understand what they can still contribute, what they may lose, and how to correctly plan before the clock runs out.

Before we get into year-end rules and planning strategies, here’s what they mean:

What is an HSA?

A Health Savings Account (HSA) is a tax-advantaged savings account available only to people enrolled in a qualified high-deductible health plan (HDHP).
It allows you to:
⠀
• Contribute pre-tax money
• Grow your balance tax-free
• Withdraw funds tax-free for qualified medical expenses

HSAs roll over year to year and never expire—making them one of the most powerful tax shelters, especially for self-employed individuals, creators, online sellers, and high net worth individuals.

What is an FSA?

A Flexible Spending Account (FSA) is an employer-sponsored benefit that lets employees set aside pre-tax dollars for medical expenses.

Key differences from HSAs:
⠀
• FSAs do not require a high-deductible plan
• You must elect your contribution amount at the start of the plan year
• Unused funds are forfeited unless your plan includes a carryover or grace period

FSAs are “use it or lose it,” which makes year-end awareness extremely important.

Below is a practical guide based on real issues we see every week.

HSA Year-End Rules & 2025 Limits

To contribute to an HSA, you must be covered by a qualified high-deductible health plan (HDHP).

2025 HSA Contribution Limits:
⠀
• $4,150 – Self-only
• $8,300 – Family
• +$1,000 catch-up for each spouse age 55+

Contributions for 2025 can be made up to April 15, 2026, but only if you still qualify.

Important rules include:
⠀
• Losing HDHP coverage means you cannot continue contributing
• Switching to a non-HDHP on January 1 also blocks prior-year contributions
• If you have HDHP coverage on December 1 (“last-month rule”), you may contribute the full annual amount

Example:

A Shopify store owner changed insurance plans mid-year and unknowingly moved into a non-HSA-eligible plan. They assumed they could still top off their HSA before April 15.

They couldn’t.

Because they ended the year on a non-HDHP plan, IRS rules blocked any new HSA contributions—even if the contributions would have been “for the prior year.”

We would advise them to restructure their medical expense strategy and redirect contributions to other tax-efficient vehicles instead.

This scenario is extremely common among online sellers, creators, and gig-economy clients who change plans based on cost, not tax rules.

The “Last-Month Rule” — A Gift for Late-Year Switchers

If you weren’t HSA-eligible earlier in the year but are eligible on December 1, you can contribute the full annual limit—even if you had only one month of HDHP coverage.

But you must stay HSA-eligible for the next 12 months.

Example:

A YouTuber / Content Creator switched to a high-deductible plan in November to lower premiums. He didn’t realize this made him eligible for a full-year HSA contribution for 2025.

We would advised him to maximize his HSA before year-end, getting him:
⠀
• A large tax deduction on his return
• A chance to invest HSA funds tax-free
• Future tax-free withdrawals for qualified medical expenses

This is an especially powerful strategy for CPA for YouTubers, TikTok creators, filmmakers, and self-employed creatives to maximize deductions before year-end.

FSAs: Use-It-or-Lose-It Rules Still Apply

Health FSAs work differently from HSAs. With FSAs:
⠀
• You elect pre-tax contributions at the start of the plan year
• You get access to the full annual amount immediately
• Unused funds generally expire

2025 FSA limit:
⠀
• $3,300

But employers may offer one or both of the following:

✔ Carryover: Up to 20% of the annual limit can roll over
For 2025 → $660

✔ Grace period: Up to 2.5 months (until March 15) to use 2025 funds

Each FSA plan is different—so you MUST check your plan details.

Example:

A dental practice client had $1,200 left in their FSA and assumed they could roll it over.

But their employer:
✔ Allowed a grace period
✘ Did not allow a carryover

This meant $1,200 was at risk if not used by March 15, 2026 (the grace period deadline).

Our team could help them make eligible purchases before December 31—saving the entire amount from disappearing.

We see this mistake constantly among:
⠀
• Doctors
• Dentists
• Medical practice staff
• Corporate clients with FSA-only plans

Example:

An Amazon business owner discovered in December that they still had $750 in their FSA. They assumed they had until tax filing season to spend it.

Incorrect.

Their plan did not offer a grace period or carryover.

We would help them quickly gather eligible expenses (medical prescriptions, glasses, physical therapy invoices) to fully use their FSA balance.

Year-End Checklist: What Taxpayers Should Do Now

1. Verify your insurance plan type
   ⠀
   Are you in an HDHP? Does it qualify for HSA contributions?
   ⠀
2. Confirm whether your FSA has:
   ⠀
   • A carryover provision
   • A grace period
   • Neither (meaning you lose unused funds)
   ⠀
3. Top off your HSA if eligible
   ⠀
   Especially if:
   ⠀
   • You are covered on December 1
   • You’re age 55+ and qualify for catch-up contributions
   ⠀
4. Plan ahead for 2026
   ⠀
   Many of our CPA for High Net Worth Individuals clients integrate HSAs into long-term tax-sheltering strategies.
   ⠀
5. If you’re self-employed, review coverage changes
   ⠀
   Creators, online sellers, and gig workers frequently change plans—but even a minor coverage change can affect eligibility.

How Velin & Associates, Inc. Helps

We help clients:
⠀
• Maximize HSA contributions
• Save unused FSA funds
• Correct plan misunderstandings
• Avoid tax penalties
• Strategize long-term medical tax planning

Real people lose real money every year simply because they misunderstand these rules. Don’t be one of them.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

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