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April 14, 2008
Long Term Care and Health Savings Accounts
As the April 15 tax deadline looms, filers should not overlook the deductions allowed for long term care insurance and the potential combination of using your Health Savings Account to pay for them.
According to LTC Financial Partners LLC, the nation’s most experienced long term care insurance agency, "People with LTC policies can deduct substantial sums, and those who don’t have policies, but want them, can set themselves up now for deductions next year."
According to the Internal Revenue Code, the 2008 deductible amounts can be as high as –
- $3,850 if you’re 70 or over*
- $3,080 if you’re over 60 but not over 70*
- $1,150 if you’re over 50 but not over 60*
- $580 if you’re over 40 but not over 50*
- $310 if you’re 40 or under*
(*Note: Before end of taxable year, if medical expenses exceed 7.5% of adjusted gross income.)
But the tax benefits may not end there. “When people start taking their benefits, there can be additional deductions in some cases,” Truesdell says. “When a policy is designed to pay on a per-diem basis, a limited portion of the benefits may be excluded from taxable income.” Also, when a policy is paid for out of a Health Savings Account (HSA), there can be tax advantages. “Health Savings Accounts are funded with pre-tax dollars, and long term care premiums are eligible medical expenses, according to the IRS (Publication 502).”
For businesses, the tax breaks can be especially attractive, Truesdell says. “For example, when small business owners pay the premiums — for employees or themselves — it’s generally deductible as a business expense.” The self-employed, S-corporation owners, and C-corporation owners are NOT subject to the 7.5% rule that limits the medical-expense deductions of individual taxpayers.
Posted by Wiley Long at April 14, 2008 04:55 PM