IRS Increases tax deduction for Long Term Care insurance
Posted: October 22, 2011 Filed under: Long Term Care insurance in Connecticut Leave a comment
Individuals who purchase a tax qualified Long Term Care insurance plan are eligible for a tax deduction. The IRS, since 1996 has used an age based schedule to establish the deductible amount. In Revenue Procedure 2011-52 the IRS reports the updated amounts for 2012 are:
-•- age 40 and under = $350
-•- 41 through 50 = $660
-•- 51 through 60 = $1,310
-•- 61 through 70 = $3,500
-•- 71 and older = $4,370.
An individual who wants to take advantage of this deduction adds the allowed amount to any other medical expenses they have when completing their annual 1040. Any amount of medical expenses above 7.5% of their AGI becomes a deduction.
When this special family protection is purchased through a business there are additional tax advantages. The tax regulations provide employers more flexibility than with health insurance.
- A Sole Proprietor can deduct up to the age based schedule amount. It is not subject to the AGI limitation applied to individuals.
- Businesses operating as a Partnership, or in an LLC , can take the full premium as a business expense. The owner(s) then take the age based amount as a personal medical expense deduction. Premium amounts above the schedule would generally become taxable income to the owner.
- Incorporated businesses: The entire premium is a business expense and there is no taxable income to the employee when the premium is paid or when benefits are received.
- One special advantage in the IRS’s Long Term Care tax regulations is the ability to allow a plan to be purchased just for the owner and spouse or select executives such as Vice Presidents and their spouses.