How LTC Insurance Premiums May Be Tax Deductible
By Alan Friedman
Did you know that qualified Long Term Care premiums are potentially tax deductible or eligible to be paid for with HSA distributions?
The value of the tax deduction does, however, vary by business entity and individual opportunities:
For the Business Owner
The most favorable tax advantages go to a C-Corporation when purchasing LTC coverage for the owner/employees of the company; or for any business entity purchasing LTC coverage for employees.
C-Corporations get 100% deduction of LTC premiums as a business expense.
A slightly less valuable tax advantage goes to owners of pass-through entities (LLCs, sole proprietorships, partnerships, S-Corps) who purchase LTC coverage through their business.
These owners get their LTC tax deduction up to age based limits taken and is taken “above the line.”
For the Individual
Purchasing LTC coverage that meets the 7.5% AGI floor requirement and taking the tax deduction can help preserve valuable HSA dollars.
This potential tax deduction, in theory, is available to any taxpayer who can meet the 7.5% AGI floor requirement. This deduction is also subject to age-based limits.
The taxpayer has the choice of taking this deduction (if eligible) or using HSA dollars to pay LTC premiums.
The value of paying LTC premiums with HSA dollars is that there is no taxation on the distribution – assuming the policy owner has such an account.
However, a tax deduction is generally the better way to go – if eligible – in order to help preserve valuable HSA dollars for other medical expenses.
Tax deductions help make the policy more affordable and more desirable of a purchase
What’s the latest in State Mandated LTC?
The WA Cares Fund was the first state mandated, publicly funded long-term care (LTC) insurance program in the nation to be passed. Other States are considering whether they should follow with their own platform. The question is “Will these States create programs similar to Washington, or go a different direction? Attached is a White Paper titled “What’s Next in State Mandated LTC?” written by Shawn Britt, CLU, CLTC the Director of LTC at Nationwide.
We cannot give tax advice and suggest that you and your clients discuss this topic with a tax professional.
Give me a call to talk about how your clients can better leverage their LTC premium dollars.