thank you for handling my long-term care insurance in such a professional
manner and pointing out that I could write off the premiums through my business.
- Chuck, Anthem, AZ
How is long-term care insurance a benefit to business owners?
TAX DEDUCTIBLE - Tax-qualified long-term care insurance policies are treated as medical insurance premiums with the same deduction criteria.
EXECUTIVE CARVE OUTS - It may be possible to create a bona fide class of select corporate employees that are eligible for corporate-paid long-term care insurance. Under a Medical Reimbursement Plan [IRC Sec. 105(e)], premium payments generally will be fully tax deductible when the class is based on such factors as officers of the corporation and length of service.
TAX FREE BENEFITS - All long-term care insurance benefits paid to the policy holder will be income tax free.
The corporation is entitled to a full deduction (100%) as a business expense on the entire premiums paid for tax-qualified long-term care insurance policies.
Tax deductible insurance protection can be purchased for employees
Company-paid policies can cover spouses-even though they are not employed by the company. The same is true for retirees. All employer-paid premiums are not included in the employee's gross income (and not reported). The same applies to spouse and tax dependents.
The LLC/partnership pays the premium. The partner or owner includes the premium in his or her gross income and deducts the eligible premium to find the adjusted gross income. Premium payments for policies purchased for a non-partner/non-owner or less than 2% shareholder-employee are fully deductible as a reasonable and necessary business expense so long as the entity does not retain any interest in the policy. The same is true for their spouse or tax dependents.
The self-employed individual can deduct 100% of the eligible tax-qualified premium from their gross income to determine their adjusted gross income.
*Source: John Hancock Corporate Law Departments interpretation of the Federal Guidelines; American Association for Long-Term Care Insurance
Please consult your tax consultant and financial advisor regarding tax issues.
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