There is some legislation that might squeak through Congress this year that would allow for 125 plans to be used to pay LTCi premiums on a pre-tax basis. That will be nice if that passes.

Keep up the good work!

Scott

You make several excellent points about ways to save on taxes when purchasing long-term care insurance. Business owners definitely have good options to deduct long-term care premiums, and anytime you can pay for something with pre-tax dollars (like your H.S.A. or pre-tax retirement funds examples above) it helps reduce your net effective cost.

My primary issue with how long-term care insurance is marketed as a “great tax deduction” for non-business owners falls under your item 5 above. With medical expenses being subject to a 7.5% floor of adjusted gross income before they can be deducted, it’s very unusual for individuals/couples who can afford to purchase long-term care insurance to actually be able to take the deduction. It can be an unpleasant surprise come tax season if you think you’re going to get this great write-off and find out you’re nowhere close to qualifying.

Thanks again for your comment!

One good thing, although LTCi premiums can be increased, fortunately, most of the leading long term care insurers with 20+ years of experience have had small or no increases on their LTCi policyholders.

Regarding tax-favored ways to pay for the premiums, I’ve discovered six:

1) Someone who has part-time or full-time self-employment income (e.g. home-based business, consulting work, etc…) can usually deduct some (if not all) of the LTCi premium under the “Self Employed Health Insurance Deduction” on the front of form 1040. The LTCi premium for the spouse of the self-employed person can also be included under this deduction.

2) Owners of Health Savings Accounts (or Medicare Savings Accounts) can use money in the HSA to pay for some, if not all, of their LTCi premium on a pre-tax basis.

3) With the passage of the Pension Protection Act, retired public safety workers(e.g. firefighters, law enforcement, paramedics, etc…) can make tax-free withdrawals from their retirement accounts to pay for their LTCi premiums.

4) Business owners of Partnerships, S-Corporations, and C-Corporations can also pay for LTCi premiums and write it off as a business expense. In the case of a partnership or an S-Corp, the business deduction would then usually be counted as personal income, but it could then be deducted under the Self Employed Health Ins. Deduction.

5) If none of the above applies, those who itemize their federal income tax return, can include much, if not all, of your long term care insurance premiums towards their medical expense deduction on Schedule A.

6) Lastly, many states have income tax deductions or credits for their residents who own LTCi. State governments are increasingly encouraging the ownership of long term care insurance and tax incentives are just one way they are doing that.

Scott A. Olson
http://www.LTCInsuranceShopper.com