If you own or are thinking about LTC, there are a few things you need to understand about long term care tax deductions before asking for an LTC insurance quote.
Under the current tax code, LTC offers some nice benefits. For example, if you itemize your deductions, you can include your premiums as a deductible medical expense. Of course, you can only use medical expenses if they are greater than 7.5% of your adjusted gross income. Also, the total you can deduct is limited based on your age (as you get older, you can deduct higher amounts).
But there are more tax advantages to long term care. For example, if you have a high deductible health insurance plan using a HSA (Health Savings Account), you can pay your LTC insurance premiums using the HSA.
Of course, if your employer pays any part of your premiums, you’re out of luck. No tax deduction for you. The only exception to this is if you are part owner of the company and it’s a partnership, LLC or S Corporation.
Finally, some good news. Unlike disability insurance, benefits paid under a long term care insurance policy aren’t taxable income.
If you are a small business owner, you get a sweet long term care tax deduction for the premiums you pay for group long term care insurance—that goes for you, your spouse or other dependents. That’s right. It’s deductible –100%.
And small business owners get even more perks. They can offer LTC coverage to hand-picked staff and their spouses – and even retired employees. If you do offer this coverage, you don’t even have to pay payroll tax on the premiums and the employees don’t get taxed on the premiums either.
If you are self-employed (but not an LLC, partnership or S Corp) you still get some long term care tax deductions. You do get to take deductions for yourself, your spouse and dependents. Also, you don’t have to overcome the 7.5% AGI threshold. But the amount you can deduct depends on your age – just like individuals.
So there are a number of ways to get Uncle Sam to help you get long term care insurance. But I would strongly recommend you speak to a qualified tax / legal professional to see how these rules apply to your specific situation. This conversation might trigger you into reorganizing your business or even starting one.
In terms of long term care, tax deductions are nice, but that should not be your main concern if you are debating whether or not to purchase a policy. I personally don’t believe everyone needs long term care insurance and I really don’t like the way these policies are sold. But if you do decide to buy this coverage, it’s nice to take advantage of the tax benefits.
Do you own LTC? Why or why not? Were the tax benefits important in your decision making process? For more information on the need for long term are insurance, please read Pinyo’s post. Very interesting take on the subject.