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Long Term Care Tax Deductions Made Clear

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

 

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.

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Comments

  1. M Shepard says

    December 5, 2011 at 7:11 PM

    This deduction apparently is not well-known. We just went through an IRS audit and the auditor was going to disallow our LTC deduction (even though my husband is self-employed). We insisted it was legitimate and, after looking through the regs, the auditor agreed.

    BUT make sure your tax software does not double deduct: once to arrive at adjusted gross income and once as part of medical expenses (deducted from adjusted gross income). Our software did so we still ended up paying more.

    Reply
    • Neal Frankle says

      December 5, 2011 at 8:11 PM

      Why am I not amazed that you had to school the IRS agent? Good for you for sticking to your guns. Way to go. Neal

      Reply

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Who is Neal Frankle

Neal Frankle

I'm a CERTIFIED FINANCIAL PLANNER™ Professional with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
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Retirement financial education for people age 55+ seeking to retire well and for those retired seeking to enjoy a better retirement.  We discuss retirement planning, retirement investments, taxes in retirement, retirement spending, IRA and 401k distributions and we will personally answer questions that you pose in the video comments.

While so much financial information is about preparing for retirement, what about managing your finances in your retirement years? That's exactly what we cover at Retirement Crusaders.

Neal Frankle is a retired registered investment adviser. Larry Klein is a retired financial advisor and retired CPA. They have 70 years of financial advising experience to share so that you have your best retirement years.

Retirement financial education for people age 55+ seeking to retire well and for those retired seeking to enjoy a better retirement. We discuss retirement planning, retirement investments, taxes in retirement, retirement spending, IRA and 401k distributions and we will personally answer questions that you pose in the video comments.

While so much financial information is about preparing for retirement, what about managing your finances in your retirement years? That's exactly what we cover at Retirement Crusaders.

Neal Frankle is a retired registered investment adviser. Larry Klein is a retired financial advisor and retired CPA. They have 70 years of financial advising experience to share so that you have your best retirement years.

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Retirement financial education for people age 55+ seeking to retire well and for those retired seeking to enjoy a better retirement.  We discuss retirement planning, retirement investments, taxes in retirement, retirement spending, IRA and 401k distributions and we will personally answer questions that you pose in the video comments.

While so much financial information is about preparing for retirement, what about managing your finances in your retirement years? That's exactly what we cover at Retirement Crusaders.

Neal Frankle is a retired registered investment adviser. Larry Klein is a retired financial advisor and retired CPA. They have 70 years of financial advising experience to share so that you have your best retirement years.

Retirement financial education for people age 55+ seeking to retire well and for those retired seeking to enjoy a better retirement. We discuss retirement planning, retirement investments, taxes in retirement, retirement spending, IRA and 401k distributions and we will personally answer questions that you pose in the video comments.

While so much financial information is about preparing for retirement, what about managing your finances in your retirement years? That's exactly what we cover at Retirement Crusaders.

Neal Frankle is a retired registered investment adviser. Larry Klein is a retired financial advisor and retired CPA. They have 70 years of financial advising experience to share so that you have your best retirement years.

YouTube Video UCoU0buhwVplzXrsyf342nOg

Retirement Crusaders

June 10, 2022 1:19 PM

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