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A way to save money is to have your business provide you with a health savings account. With an HSA, you make tax-deductible contributions that grow free of income tax and Social Security and Medicare taxes. You also can set up an HSA for yourself, even if you’re a sole proprietor. To be an eligible individual and qualify for an HSA, you must be covered under a high deductible health plan (HDHP).
LONG TERM CARE INSURANCE, IS IT TAX DEDUCATBLE?
Most Long Term Care policies are IRS tax qualified, which means that the insurance contracts conform to IRS rules and the 1996 Health Insurance Portability and Account Act also known as HIPPA. However, there are still non tax qualified plans, so be sure to inquire with LTC USA for advice on which ones are qualified. Only tax qualified Long Term Care policies qualify to be tax deductible.
How you can deduct the premiums depends on your circumstances:
- An individual, not in business: With tax qualified long term care insurance plans, benefits you receive are not considered taxable income and you can deduct long term care insurance premiums as medical expenses to the extent that your total qualified medical expenses exceed 10% of your annual adjusted gross income without an HSA.
The amount of long term care insurance premiums that you can include in your total medical expenses is subject to Internal Revenue Service (IRS) limits by age. Here are the current published IRS limits by age:
The Federal Long Term Insurance Tax Deductible Limits for 2014 and 2015 are as follows:
- Age of Taxpayer: 40 or less 2014: $370 2015: $380
- Age of Taxpayer: >40 to 50 2014: $700 2015: $710
- Age of Taxpayer: >50 to 60 2014: $1400 2015: $1430
- Age of Taxpayer: >60 to 70 2014: $3720 2015: $3800
- Age of Taxpayer: >70 2014: $4660 2015: $4750
- A business owner: (Does not include any passive business like real estate rental that does not pay Social Security Self-Employment Tax)
If you are self-employed or a business owner you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long term care insurance coverage for yourself, your spouse, and your dependents. You may be able to take this deduction if one of the following applies to you:
- You had a net profit from self-employment. You would report this on a Schedule C, Profit or Loss from business, Schedule C-EZ, Net Profit from Business, or Schedule F, Profit or Loss from Farming.
- You had self-employment as earnings as a partner reported to you on Schedule K-1 (Form 1065), Partner’s Share of Income, Deduction, Credits, etc.
- You used an optional method to figure your net earnings from self-employment on Schedule SE, Self-Employment Tax.
- You were paid wages reported on Form W-2, Wage and Tax Statement, as a shareholder who owns more than two percent of the outstanding stock of an S corporation.
The insurance plan must be established with your business name. You may be allowed this deduction, whether you paid for the premiums yourself, or your partnership or S corporation paid them, and if you included the premiums in your gross income. For more information on tax deductible Long Term Care Plans and HSA, please look at IRS Tax Tip at the following web address:
How do you exclude benefits received from Long Term Care Insurance policy?
See IRS Publication 525.
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