Are you self employed and thinking that you can’t afford to pay for long term care insurance? Well think again. You can actually have Uncle Sam help you pay for long term care insurance. Following is an article by Ashlea Ebeling, Forbes Staff, which explains how you can do so.
Can a tax deduction help you afford long-term care insurance? If you’re buying it as an individual, maybe. If you’re self-employed and buying it through your business, absolutely. “It’s kind of a hidden secret,” says Lisa McAree, an insurance broker in Braintree, Mass.
“Accountants will say you ought to contribute to a 401(k) retirement plan, or buy an SUV [to snag a tax break] but they don’t often bring up the fact that you can buy long-term care insurance through your business and get a tax deduction,” she adds.
McAree just signed up Kathleen Hagan, a single boomer who is a medical technology consultant in Watertown, Mass., with a long-term care policy fromPrudential. The premium runs $3,204 a year, and it’s 100% deductible as a business expense on her federal income tax return. Basically, that’s like getting a 30% discount (or more, depending on your tax bracket). Plus, the benefits, if you eventually need them, are tax-free. Massachusetts doesn’t offer a tax break but many states do. Manulife’s John Hancock has a list of state incentives in its Long-Term Insurance 2011 Federal and State Tax Guide.
The federal tax break didn’t drive Hagan’s decision to buy. She had it on her to-do list. But the tax savings enabled her to get a policy with better coverage, she says. “It’s like saving for retirement and getting a will,” Hagan says. “It’s one of those things you need to do. I was a Girl Scout!”
Not everyone can get a tax break for long-term care premiums. If you’re buying a policy as an individual (not through your business), long-term care premiums are deductible as medical expense deductions, and those are only allowed to the extent they exceed 7.5% of your adjusted gross income.
There’s a second hurdle: an age-related premium limit on how much is potentially deductible (you deduct the lesser of the actual premium paid or the age-related premium). In 2011, if you’re 41 to 50, it’s $640 a year; if you’re 51 to 60 it’s $1,270; if you’re 61-70 it’s $3,390; and if you’re 71 and older, it’s $4,240.
Here’s the deal for self-employed folks with business income that passes through onto their personal returns. They don’t face the 7.5% AGI limit. Instead, they can deduct 100% of the premiums paid for themselves (and spouse) as a business expense, just like health insurance. These folks are still subject to the age-related premium limits, but that doesn’t necessarily limit your deduction—it didn’t in Hagan’s case.
Hagan’s long-term care purchase topped off a health and wellness makeover she started a few years ago. She tap dances, rows and cross-country skis. Her hope is that if she ever needs to borrow on her policy that she can have healthcare and assisted living services in her first floor condo in a charming old Victorian house. “I hope it’s the biggest waste of money I ever spent,” she says.
I hope you enjoyed the above article, and hope it was very beneficial to you. We all know that being self employed can be tough sometimes. Anything to make things a little simpler certainly helps. To read the original article click here.