The Tax Advantages Of Long-term Care Insurance
A lot of people will need long term care at some point of their lives, but this should not threaten their finances saved for themselves and their loved ones. Nobody wants to see his or her assets put to waste for expensive long term care services. That's where long term care insurance works. These policies cover poliyholders with chronic illnesses or disabilities in a setting that they have chosen. What's good about long-term care policies is that they provide tax advantages .
Benefits paid under long-term care insurance policy came from daily maximums which costs around $30 to $300. You may opt to pay for lower benefits/ premiums, but dont pinch pennies on that. John Hancock, a private insurance company, conducted survey and found out that the national average cost of semi-private room in a nursing home in 2008 alone was $183 a day or $67,000 annually, and the average annual cost in an assisted living facility was $35,500. The amount of premiums depend on your age and health issues at the time of purchase. In fact, LTC premiums for people at age 65 are more expensive (normally twice) than that of age 55.
Qualified LTC policies are eligible for federal income tax breaks. However, make sure the qualified policy is renewable, unless they wont bring in cash value. Most policies offered nowadays are qualified policies, but make a habit of checking before signing any contracts from your private insurer.
Benefits from qualified long-term care policy are normally federal income-tax-free because they are regarded as insurance reimbursements for medical expenses. In 2009, benefits that cost up to $289 per day received tax-free feature. Policies with higher benefits are still tax-free, but they should not exceed your total long term care expenses.
All long term care insurance benefits accumulated within a year should be declared through the Form 1099-LTC, which should be delivered to you early in the following year. Calculate the taxable amount of benefits on Form 8853 that is usually attached to Form 1040.
Like what has been said earlier, qualified long term care policy is tax-free under the federal income tax purposes; premiums, otherwise, are considered as medical expenses. If your premiums go beyond the age caps, the capped amount will be considered as the only medical expense.
Premiums that are paid through your business have generous tax advantages. Any types of businesses such as C corporation, S corporation, partnership, and etc may pay for large premiums that can be declared as tax deductible. Moreover, the benefits for these premiums may also be tax free. If you own even a small business, you may remove the 7.5% threshold and deduct premiums to maximum amount that rises along with age. Owners of C corporation are lucky since they can acknowledge the entire premiums as tax deductible.
Otherwise, an employer can select employees to buy coverage and deduct the premium; the premiums will not be considered as income. It's best to consult Section 105 and 106 of the IRS code for clarification. To those who are confused, long-term care insurance is the same as health insurance. Also, policies under partnership programs may give some kind of tax deductions. Long-term care insurance policies provide a lot of advantages, so it would be better to go for their offers.
by: Marcia Cross