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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.

 
PRLog - Oct. 23, 2012 - DE PERE, Wis. -- 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

$350

$360

41 through 50

$660

$680

51 through 60

$1,310

$1,360

61 through 70

$3,500

$3,640

71 and older

$4,370

$4,550

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

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Source:Krause Financial Services
Phone:(866) 605-7437
Zip:54115
Location:De Pere - Wisconsin - United States
Industry:Finance, Insurance
Tags:insurance planning, long term care insurance, taxation
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