Last Minute Holiday Gift: Long Term Care Insurance Tax Deduction
Imagine a gift that gives not only to the family and friends you love, but to yourself as well. But, as they say, “Wait, there’s more!” In fact, this gift is often tax-deductible!
Yes, it does sound too good to be true…but luckily, it’s not. That holiday gift which benefits you and the ones you love— long term care insurance with a tax deduction.
Business owners of all types can deduct long term care insurance premiums on their federal income taxes.
Not a business owner? You may still be eligible to deduct premiums. Depending on where you live, many states also allow a credit or deduction on their state income taxes. Federally, long term care insurance premiums (in part or total) can be included in calculating the federal medical expense tax deduction as well.
In any event, even if you don’t qualify for any tax deduction, when you collect long term care insurance benefits, they are almost always tax-free. (Here’s the fine print: policy benefits received in excess of what you pay for qualified long term care services can be taxable to the extent they exceed $400/day in 2021.)
But let’s get back to the concept of a long term care insurance (LTCI) policy being a holiday gift.
What do any of us really need now?
This year, most of us are more aware than ever of the relative unimportance of, well, things. Who needs another pair of slippers, a scarf, necktie, or belt?
If we consider the core values of health, family, friends, and neighbors, it’s tough to imagine a gift that could give more essential value than a long term care insurance (LTCI) policy. Think about the times when someone you cared about needed extended care. How nice to consider that the federal government (as well as many states) will reward us for buying this coverage!
Below is a basic summary of how the federal deductibility works. For additional information, including state incentives, as well as whether your state allows the sale of Partnership LTCI policies, please contact me or your tax preparer.
Federal Tax Deductibility of Long Term Care Insurance
Tax deductions are available only on what are called tax-qualified policies. The vast majority of policies are either tax-qualified or grandfathered and eligible to be deducted. If you have a question about whether or not a policy is eligible, please contact me.
If you have a Health Savings Account (HSA), keep in mind that long term care insurance is a qualified expenditure from HSAs.
C-Corporations can deduct 100% of long term care insurance premiums.
Self-employed business owners, or owners of an LLC or S-Corporation, can deduct LTCI premiums, subject to the IRS-imposed age limits below.
To the extent that unreimbursed qualified medical expenses exceed 10% of Adjusted Gross Income (AGI), the excess is tax deductible. Long term care insurance premiums paid—up to the IRS-imposed limits shown below—can be included in the medical expense calculation.
The limits shown below have been updated for 2021.
Age At end of Tax Year Maximum Eligible Premium Deduction
40 or under $450
Over 40 but less than 50 $850
Over 50 but less than 60 $1,690
Over 60 but less than 70 $4,520
Over 70 $5,640
This all goes to say, depending on how quickly you act, we may be able to get you coverage, and a nice tax deduction, by the end of 2020. If long term care insurance makes sense for you now, let’s get it in place as soon as possible. It’s the gift that truly keeps on giving.
Should you or anyone you know have questions about long term care planning, long term care insurance policies, or financial planning, please do not hesitate to reach out. Baygroup Insurance can be contacted at http://www.baygroupinsurance.com/forms/contact-us or call us at 410-557-7907 for more information.