Since many taxpayers are now preparing their 2023 taxes, I wanted to take a moment to provide information about a tax deduction that some people can take for long term care insurance premiums. Long term care insurance is unusual in that not only are benefits typically paid 100% tax-free, but also some policyholders can deduct a portion of, or all of their premiums.
Self-employed business owners who are categorized as either a Sole Proprietor, Partner, S-Corp owner (greater than 2%), or member of an LLC (which is taxed as the previous categories) may take the deductions listed below for a long-term care insurance premium. The deduction is taken on the personal Form 1040, as part of the self-employed health insurance deduction because the tax code treats long term care insurance premiums like health insurance premiums.
For hybrid LTC insurance plans, the portion of the premium that pays for LTC can also qualify for a deduction if the following two conditions are met: the policy must be a tax-qualified LTC rider AND the LTC portion of the premium must be listed separately on the policy. If both conditions are met, the policy will qualify for the premium deduction subject to the Age Based guidelines below.
TAX YEAR 2023 LTC INSURANCE
DEDUCTION LIMITS
Attained age in tax year 2023 Deductible premium limit
40 or younger…………………………………………………………$480
41- 50……………………………………………………………………$890
51-60………………………………………………………………….$1,790
61- 70…………………………………………………………………$4,770
71 and older…………………………………………………………$5,960
These “Aged Based Limits” for a long-term care insurance premium deduction also apply to the spouse of a self-employed individual, even if he or she doesn’t file a Schedule C for self-employment income.
Business owners of a C-Corp (including professional corporations and LLCs that are taxed as a C-Corp) may deduct the FULL premiums paid for long term care insurance as an ordinary business expense on the company’s tax return for themselves, their spouse, dependents, employees and employee’s spouses and dependents…each of whom is NOT subject to the above Age Based limits chart. This deduction also applies to the stockholders of C-Corps, their spouses and other tax dependents as long as the stockholder is an employee of the business.
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Please note that I do not provide tax or accounting advice. These details have been provided for informational purposes only, and are not intended to provide, and should not be relied on for, tax or accounting advice. You should consult your tax and accounting advisors.