Business Tax Deduction on Long Term Care Insurance Premiums
There are certain circumstances where you can take a business tax deduction on long term care insurance premiums paid for yourself, your spouse, or your dependents.
A long term care insurance policy is a special kind of insurance policy that provides care for people who become unable to perform the basic necessities of living with assistance. These include the ability to feed and clothe yourself in addition to some other qualifying disabilities. Also included is severe cognitive impairment. These policies have been sold in the private sector by Insurance companies for over 30 years now. Recently, what are known as tax qualified long term care policies are becoming popular. This is because the benefits are tax exempt and the cost of premiums may be a business tax deduction.
There are some restrictions that apply and that qualify the long term insurance policy. It must be guaranteed renewable. It can have no cash surrender value or build investment equity. In other words, policies that are actually investment vehicles are not considered for tax exempt status or for business tax deductions. The investment types of policies are known as traditional or non-tax exempt.
There is also a requirement that the benefits of the policy do not substantially conflict with benefits already offered or covered by Medicare. The amount of the premium that may be considered a deduction also varies depending on the age of the insured. It might be noted that, although long term care is often thought of as a problem of the elderly, a large number of people between the ages of 18-65 are receiving assisted care as a result of accidents or disease.
The business tax deduction on long term care insurance premiums can be taken by a self employed individual on Schedule C (Form 1040), or on the Profit or Loss from Business Form, Schedule C-Ez (Form 1040), or the Profit or Loss from Farming Form, Schedule F (Form 1040). A shareholder holding more than 2% of the stock in an S Corporation may claim the costs of premiums for himself, his spouse, and his dependents, as long as he receives wages from the Corporation reported on a Form W-2.
In the case of a Sole Proprietorship, the insurance policy does not have to be in the name of the business, as it should be in the above cases. It can be in the name of the Sole Proprietor and entered as a business expense on his Form 1040. With the increased life expectancy and the higher percentage of elderly people, as well as the increasing costs of Medical care, the business tax deduction for long term care insurance premiums is something that should be seeing much more use in the coming years.