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2013 Long-Term Care Insurance Premium Deductibility

With the end of the year fast approaching, now is an excellent time to discuss the favorable tax treatment of long-term care insurance ("LTCI") premiums.

Oct. 23, 2012 - PRLog -- With the end of the year fast approaching, now is an excellent time to discuss the favorable tax treatment of long-term care insurance ("LTCI") premiums.

The Internal Revenue Code categorizes LTCI contracts as either qualified or non-qualified.  In order to be qualified and receive favorable federal income tax treatment of premiums, a LTCI contract must meet the following criteria:

It can only cover qualified long-term care services, such as: diagnostic, preventative, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance of personal care services.
A licensed healthcare practitioner must certify that the insured cannot perform at least two activities of daily living without substantial assistance, or requires substantial supervision for safety reasons as a result of a cognitive impairment (i.e. Alzheimer's).
It generally does not cover any expenses paid by Medicare.
It is guaranteed renewable and does not provide for a cash surrender value.
It must offer certain consumer-protection provisions.

Assuming the plan is qualified, taxpayers who itemize their deductions may deduct the lesser of the premiums paid or the amount reflected in the following Age-Based Deduction Chart.  For LTCI premiums to be deductible, the taxpayer's unreimbursed medical expenses must exceed 7.5% of his or her adjusted gross income.  As for business owners, such as sole proprietors, partners, and shareholder-employee of S corporations, they may deduct the lesser of premiums paid or the age-based deduction limit, without having to itemize or meet the 7.5% floor for unreimbursed medical expenses.  Additionally, shareholder-employees of C corporations have the best opportunity, in that corporate-paid LTCI premiums are excluded from an employee's income - the age-based deduction limits do not apply - and are fully deductible to the corporation.

Age-Based LTCI Premium Deductions

Age at End of Taxable Year

Maximum Deduction for 2012

Maximum Deduction for 2013

40 or less



41 through 50



51 through 60



61 through 70



71 and older



A special thanks to ElderLawAnswers for first publishing this information - www.elderlawanswers.com.

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Source:Krause Financial Services
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Location:De Pere - Wisconsin - United States
Industry:Finance, Insurance
Tags:Insurance Planning, Long Term Care Insurance, Taxation
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