Is Long Term Care Insurance Tax Deductible? |
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| By: Jenny Nielsen | ||||
What are Qualified Policies? To be considered as “qualified”, policies that were issued on or after January 1, 1997 must meet certain requirements, among them are inflation and non-forfeiture protection options that the insured has the right to accept or turn down these options. Policies purchased before January 7, 1997 will only be treated as “qualified” once they have been approved by the commissioner. Tax-qualified LTCi policy applies favourable tax treatment for premiums paid, out-of-pocket expenses, and benefit payments. However, non-tax qualified policies are not eligible for deductions. Qualified LTCi policies are considered as medical expense or tax deductible, provided that it exceeds 7.5 percent of the person’s adjusted gross income (AGI). The premiums, which are paid by the private insurance company, are tax deductible for the insured, his or her spouse, and other dependents. The amount that will be deducted on the premiums depends on the age of the insured. Recently, the Internal revenue Services (IRS) increased the percentage that can be deducted on LTCi. The maximum deductible limit for individual policy exceeds $4,000. Below is 2010’s deductibility limit set by the IRS: 40 or less - $330 More than 40 but not more than 50 - $620 More than 50 but not more than 60 - $1,230 More than 60 but not more than 70 - $3,290 More than 70 - $4,110 Aside from individual policies, the tax deductions also apply to business owners and self-employed. Moreover, self-employed individuals can deduct 100% of his/her out-of-pocket long term care insurance premiums even up to the eligible premium amount. However, the amount of LTCi premiums that surpasses the eligible amount is not deductible. Also, the deductible amount can be paid for spouses and dependents, and it is no longer a requirement to reach 7.5 percent AGI threshold. Those engaged in partnership, LLC and Subchapter S Corporation are treated as self-employed individuals. They can deduct the 100 percent of the age-based eligible premium and are not expected to meet the 7.5 percent AGI threshold. However, if the person buys LTCi policy under his or her name and not under the business name, the individual will not be considered as self-employed and should meet the 7.5% AGI. When a business purchases tax-qualified policy on behalf of its employees, or their spouses or dependents, the corporation can freely deduct the 100% deduction as business expense on the total premiums. The deductions are not based on age caps. The company can also select the employees whom it covers. The premium paid by the business is not counted from the employees’ Adjusted Gross Income even if the premiums go beyond the eligible amount. |
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| Article Source: http://yourfinance.co.za | ||||
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