📬 The IRS says you owe. You already paid.

The Health Savings Account is one of the genuinely great inventions in American personal finance, and it is perpetually misunderstood in a way that costs people real money.

The most common belief is that an HSA is for doctor visits and prescription drugs. That’s true, but it’s like saying a Swiss Army knife is for cutting string. Technically accurate. Barely scratches the surface.

What actually qualifies is any expense the IRS considers “medical care,” which is a surprisingly expansive category. Doctor visits, yes. But also dental work, vision care, prescription glasses, contact lenses, hearing aids, orthodontia, mental health therapy, acupuncture, chiropractic care, and (this one surprises people), over-the-counter medications and menstrual care products, added to the list in 2020 and worth knowing about. You can even use your HSA for COBRA premiums if you’re between jobs, and for long-term care insurance premiums up to an age-based annual limit.

What doesn’t qualify is anything the IRS classifies as a general health or wellness expense rather than treatment for a specific condition. Gym memberships, vitamins, toothpaste, cosmetic procedures, and most nutritional supplements are out. The rule of thumb: if a doctor prescribed or recommended it for a diagnosed condition, you have a defensible case. If you just feel like it would be good for you, probably not.

Now, the part that makes people nervous. If you use your HSA for a nonqualified expense, two things happen. The amount is added to your taxable income for the year, and you owe a 20% penalty on top of that. So it’s not catastrophic, but it’s not nothing either, especially on a larger purchase. Keep your receipts. The IRS doesn’t audit every HSA transaction, but if you’re ever asked to explain a distribution, “I thought vitamins counted” is not a winning argument.

One more thing worth knowing is that your HSA money rolls over every year. There’s no “use it or lose it” rule. You can contribute now, let it grow, and save every receipt from the next twenty years. Then, at 65, nonqualified withdrawals are simply taxed as income with no penalty. The same as a traditional IRA. At that point, the account essentially becomes a bonus retirement fund with a healthcare superpower attached.

Few things in adult life produce the specific, unpleasant sensation of an IRS notice claiming you owe money you are absolutely certain you paid. It’s the financial equivalent of a parking ticket on a car that wasn’t there. You know it’s wrong. Proving it is the project.

The good news is that this is a solvable problem, and the IRS has a process for it. The less good news is that the process requires some patience and a willingness to write a letter in a tone more measured than the one you’re feeling right now.

The first thing to do is identify what kind of notice you have. The IRS sends different letters for different situations.

Check the notice number in the upper right corner. It tells you what you’re dealing with.

Next, gather your proof of payment. You’ll need your bank statement or canceled check showing the payment cleared, your tax return for that year, and the IRS notice. If you paid electronically through IRS Direct Pay, log in at irs.gov/directpay and pull the confirmation. If you paid by check and it cleared, your bank can provide a copy. If the check never cleared — if it’s just sitting in a pile somewhere at the IRS, a thing that does happen — that changes the approach slightly, but the documentation step is the same.

Then respond in writing, calmly and specifically. Write a letter that states the notice number, the tax year in question, and the fact that you paid — attaching copies of your documentation. Don’t send originals. Mail it certified with return receipt. The address is on the notice itself. You can also call the IRS at the number on the notice, though “call the IRS” is the kind of sentence that requires a full afternoon and a good book to get through the hold time.

What happens next depends on whether the payment was lost, misapplied, or simply not yet posted. The IRS posts payments manually in some cases, and backlogs happen. If your payment exists but wasn’t credited to the right account or tax year, they can research and correct it. If you can prove it cleared and they still can’t find it, you may need to request a payment trace.

Do not ignore the notice while you sort this out. Interest accrues on unpaid balances regardless of whether the IRS is wrong about what you owe. If you believe you’re right, respond promptly and in writing, and note that the balance is disputed. That doesn’t stop the clock on interest, but it does create a paper trail that protects you if this escalates.

The IRS makes mistakes. So does the mail. This particular situation resolves the vast majority of the time once you can produce evidence that the money left your account and went to theirs. It just requires you to make the case patiently, in writing, to an institution that is in no particular hurry.

Every Thursday, we go to work.

The TaxStache Business Edition breaks down the tax and finance topics that actually matter to business owners, from quick intros to in-depth dives. Plus book, podcast, and video recs to keep you sharp, and a weekly download you can put to use right away.

If you own a business (or you’re building one), this one’s for you.

Tax-loss harvesting is one of those phrases that sounds like something invented specifically to make financial advisors seem worth their fee. It has “tax,” “loss,” and “harvesting” in the same breath, which implies a sophisticated operation involving spreadsheets, a combine, and possibly a CPA in overalls.

It is actually quite simple. Here is the whole concept in two sentences: When you sell an investment for less than you paid for it, you realize a loss. The IRS lets you use that loss to offset gains, or, if you don’t have gains, up to $3,000 of ordinary income per year.

Why this matters in June specifically. Most people think about this in December, which is fine, but December is also when everyone else is doing it, and when you’re scrambling to make decisions before the year ends. Reviewing your portfolio now gives you more options. If something is down significantly and you’ve held it long enough that you don’t love it anymore anyway, you can sell it, book the loss, and reinvest the proceeds in something similar. You lock in a tax benefit without dramatically changing your investment strategy.

The mechanics. If you sell a stock for a $5,000 loss, that loss first offsets any capital gains you have this year, dollar for dollar. Sold something else at a $3,000 gain? Now your net gain is zero and you’ve paid nothing in capital gains tax. If your losses exceed your gains, you can deduct up to $3,000 of the remaining loss against your regular income. Anything beyond that carries forward to next year automatically.

The one rule you cannot ignore: the wash-sale rule. If you sell a security at a loss and then buy the same security (or one “substantially identical” to it) within 30 days before or after the sale, the IRS disallows the loss. You don’t lose it forever; it gets added to your cost basis in the new position. But you lose the timing benefit. The solution is to either wait 31 days or buy something similar but not identical — a different S&P 500 fund, for instance, instead of the exact same one.

Should you do this right now? It depends on what you’re holding. If you have positions that are down meaningfully and you have gains elsewhere this year, or you’re sitting on a position you’d planned to exit anyway, it’s worth a look. If your portfolio is up across the board, there’s nothing to harvest. Log into your brokerage, sort by unrealized gain/loss, and see what the situation actually is before you decide. The tax benefit is real, but it’s a side effect of a sound investment decision — not a reason to make a bad one just to generate a loss.

Your portfolio is probably sitting on losses right now. The IRS will literally let you use those against your tax bill. The trick is knowing which ones to pull and when. Origin spots them for you, automatically. Stop guessing, start harvesting.

👉 Get Origin for $1