Buy LTC Insurance Before the End of the Year, Get a Deduction

There is still time to buy LTC insurance before the end of 2014 and capture a tax deduction for this year.  As long as you sign an application and pay your first premium before the end of the year, you can claim a health insurance deduction for tax-qualified LTC insurance premiums.

Business owners - even self-employed business owners - get the best deal.
C-corporation
Shareholders (owners) of a "regular", C-corporation (or a Professional Corporation (PC) taxed as a C-corp) who are also W-2 employees can have their business pay and deduct the full premium - without limit - for tax-qualified LTC insurance with no impact to their individual income.  And benefits at time of claim remain tax-free.  Spouses can be covered too, and with care, the plan can discriminate in favor of key employees.
Self-Employed
This includes sole-proprietors, partners, >2% shareholders of an S-corporation, and Limited Liability Companies (LLCs) taxed as any of these "pass-through" entities.  Any of these self-employed business owners can have their business pay the full premium, but they must recognize the premium payment as income (a draw, guaranteed payment on K-1, or added to W-2 depending on how the entity is taxed).  If the policy is tax-qualified, premiums up to the Eligible amount is deductible "above-the-line" on page one of Form 1040 as part of the "Self-Employed Health Insurance Deduction".  Again, spousal premiums can be deducted the same way, and the plan can discriminate in favor of key employees.

The individual, age-based, "Eligible", deductible premium limits for 2014 are:

Age by end of Tax Year
Age 40 or less
Age 41 - 50
Age 51 - 60
Age 61- 70
Age 71 and older

2014
$   370
$   700
$1,400
$3,720
$4,660

Eligible premium amounts index upward for inflation every year.  See the previous TakeCare! blog post for 2015 numbers.

Not every taxpayer will qualify, individuals - who are not business owners - have to itemize, and your payments up to the Eligible LTC insurance premium (table above) are added to your unreimbursed medical expenses on Schedule A, the total must exceed 10% (7.5% if you're 65+) of your Adjusted Gross Income (AGI) realize any deduction. However, you can use money from your Health Savings Account (HSA) to pay tax-qualified premiums up to the Eligible limit tax-free.

Note that premiums paid for linked-benefit policies (annuities or life insurance combined with a LTC benefit) generally do NOT qualify for a premium deduction.

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This post is is for general information only.  It is not meant as legal or tax advice and should not be used as guidance in any specific situation.  Please consult with a qualified attorney and/or tax advisor.