As the Baby Boom generation continues to age, there is an increasing interest in insurance to pay some of the high costs involved in staying in a long-term care facility. Your family business can provide group coverage for yourself and your employees. If you are interested in long term care insurance, it can be worthwhile to obtain the coverage through your business -- rather than as an individual.
Age on 12/31/18 Age on 12/31/19 Maximum Amount 40 or under $420 40 or under $ 420 41 to 50 780 41 to 50 790 51 to 60 1,560 51 to 60 1,580 61 to 70 4,160 61 to 70 4,220 Older than age 70 5,200 Older 5,270
Age on 12/31/18
Age on 12/31/19
40 or under
40 or under
41 to 50
41 to 50
51 to 60
51 to 60
61 to 70
61 to 70
Older than age 70
Don't get too enthusiastic about the tax savings received by individual taxpayers, because this is only part of the story. The next step is to take these age-based amounts and combine them with your other medical expenses (such as health and dental insurance premiums, insurance co-payments, out-of-pocket prescription costs, and other unreimbursed medical outlays). If the resulting total exceeds 10% of your adjusted gross income (AGI) in 2019 (up from 7.5% in 2018) you can write off the excess as an itemized medical expense on your Schedule A. But if you can't get over the 10% of AGI hurdle, you get no tax savings. If you personally pay premiums for a long-term care policy that is not a qualified policy, the premiums are treated as a nondeductible personal expense.
Tax Savings if Your Business Operates as a C Corporation
As you can see, the write-offs taxpayers receive for long-term care insurance can often be less than expected. However, the tax rules are much more generous if you run your own business as a C corporation, work for the firm as a shareholder-employee, and provide the insurance as a fringe benefit.
Strategy: Have your C corporation provide company-paid qualified long-term care coverage as an employee benefit for selected employees, such as yourself. The coverage is eligible for the same tax-advantaged treatment as regular company-paid health insurance.
What about employees you would rather not cover? No problem. You don't need to provide coverage to them, because there are no nondiscrimination rules for long-term care insurance provided as an employee benefit.
Tax-Saving Strategy for Sole Proprietors And Single-Member LLCs
Now let's say you run your business as a sole proprietorship or single-member LLC, which is treated as a sole proprietorship for federal tax purposes. In these scenarios, a good tax-saving strategy is to hire your spouse as a bona fide employee of the business. Then, arrange to have your business provide
Under this arrangement, you can deduct 100% of the premiums on your Schedule C. The age-based long-term care insurance deduction limits don't apply so there's no taxable income for the covered individuals. As with a C corporation, you don't have to provide coverage for other employees, because there are no nondiscrimination rules for this benefit.
Rules for S Corporations
If you run your business as an S corporation, the company can pay for qualified long-term care insurance premiums on behalf of shareholder-employees, including you. If you are a more-than-two-percent shareholder, the company-paid premiums that benefit you are treated as additional taxable wages on your Form W-2. The extra amount can be deducted by your S corp and can be exempt from the Social Security and Medicare taxes with proper planning.
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