If affordability is one of the concerns keeping you from investing in a LTCI policy, consider the tax benefits that go along with LTCI.
What Congress isn't Doing to Help
It would be wonderful to be able to say that Congress has allowed all LTCI policyholders to deduct the full premium on their taxes. Unfortunately, our lawmakers have not yet enacted such legislation. As is often the case, they are waiting until the system is almost broke before they will do anything like that. And with the approaching flood of baby boomers quickly becoming seniors, it doesn’t take much to realize that we have a train heading off the tracks at full speed.
Tax Benefits You Can Reap Now
However, despite the impending train wreck, there are some tax benefits that have been approved thus far. If you are considering the purchase of LTCI you should know about them.
Currently, most of the tax deduction benefits go to employers and the self-employed. If you don’t fall into that category, Congress requires you to itemize your LTCI policy premiums along with all other health expenses during the year. Anything over 7.5% of your adjusted gross income can be used as a deduction. If you have a health savings account (also known as an HSA medical plan), however, you may be able to deduct more even if you are an employee or retired person.
If you are a sole proprietor, a partner, or own an S corporation or LLC—even if it is just a small business—you can eliminate that 7.5% threshold and instead deduct premiums up to a certain maximum that increases with age. The tax schedule that lists this table for qualified deductions is available for download on my Web site. If you would like to learn more about the specific deductions that may be available, you can find it at http://www.duanelipham.com.
If you own a C corporation, you are fortunate enough to be able to declare the entire premium as tax deductible.
What This Means in Real World Dollars
The amount of money you will save depends to a large degree on your tax bracket. Many self-employed folks in the 30% tax bracket who use the tax schedule mentioned above may be able to save 20% or more of their LTCI premiums in tax benefits. For those who can deduct the entire premium, even greater savings can be realized.
Of course, it is wise to consult your accountant or tax attorney to be sure of the tax benefits that may apply to you specifically. The tax benefits surrounding LTCI can save you money in the long run, and we all know what the health benefits can save: in some cases, your life.
Until next time...Duane
Duane Lipham is a Certified Long-Term Care (CLTC) consultant.