Long Term Care Planning Now Can Reduce Your Tax Bill Tomorrow

Long Term Care Planning Now Can Reduce Your Tax Bill Tomorrow
April 15, long the iconic date for all things taxes has passed for another year. With its passing, also gone are the headlines touting the best last-minute tax-saving strategies.
As is true of so much in life, last-minute planning is almost always less thoughtful than a measured, considered, planning approach.
That’s why I’d like to ask you to consider the purchase of long term care insurance (LTCi) now. Not only is long term care insurance a smart move for most people who plan for retirement, but the purchase could possibly reduce your tax bill in 2014 and beyond.
Long term care insurance premiums can be either partially or fully deductible in these cases:
– Self-employed people (age-based limits apply)
– C-Corp: premiums paid for employees, spouses and dependents are deductible.  Age-based limits do not apply.
– LLC, Sub-S Corp., Partnerships – premiums paid for employees is deductible. Premiums for owners will be included in their income, and is deductible subject to age-based limits.
– Individual taxpayers: LTCi premium is includable in itemized medical expenses for the medical expense deduction (age-based limits apply)

In addition, LTCi premiums are an acceptable expenditure in Medical savings Accounts (Archer MSAs), and Health Savings Accounts (HSAs). The latter is subject to age-based limits. Long term care insurance premiums are NOT permitted to be paid in a Section 125 Plan (aka Cafeteria Plan).
If you decide to purchase an LTCi policy, the underwriting process can take several weeks, largely dependent on how quickly your medical practitioners fulfill record requests. Therefore, in order to get a deduction on your 2014 taxes, it’s advisable to take action now instead of waiting for the fall to research and get quotes on LTCi.

Furthermore, to maximize your 2014 deduction, consider paying an annual or semi-annual premium before December 31. If your deduction is subject to age-based limits, you will want to pay a premium amount that hits or exceeds the limits. For example, the age-based individual premium deduction for someone in his or her 50s is $1,400. If a policy costing $2,100/yr. was applied for in June and issued in August, and the person paid a semi-annual premium, the premium paid in 2014 would only be about $1,050 (leaving $350 of deduction ‘on the table’). However, if the individual paid an annual premium of $2,100, he or she would be eligible for the full $1,400 deduction.
Finally, keep in mind that many states offer tax deductions or even tax credits for long term care insurance premiums.