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Long Term Care Insurance Deduction for 2013

Long Term Care Insurance Deduction for 2013

Long Term Care Insurance Deduction for 2013

If you pay for long-term care insurance premiums, The Internal Revenue Service has good news for those responsible people who have planned to fund their own long term care: You can now deduct more of your premium as a medical expense on your federal income taxes in 2013.

The amount you can deduct for long-term care insurance increases as you age. In 2013 individuals age 40 and younger will be able to deduct up to $360 in premiums as medical expenses. Those aged 70 and older will be able to count up to $4,550 in premiums as deductible medical expenses. For small businesses structured as ‘C’ corporations, the cost of long-term care insurance can be fully tax-deductible, even for spouses. In addition, a business can form a group that can be covered under a corporate-paid plan. Each year, the IRS increases the federal deductibility limits for long-term care insurance costs to keep pace with inflation. Although the federal increases are small, the tax advantages of the policies can provide significant savings, particularly for retirees and small businesses, according to the American Association for Long-Term Care Insurance.

Long term care comprises many services for people who can no longer take care of themselves. It includes help with day-to-day living tasks, such as eating or bathing. Medicare generally doesn’t cover long-term care, and there is no affordable health insurance alternative that provides the services and protections of long-term care insurance. Medical expenses are deductible if you itemize your deductions, but there is a limit on how much of those medical expenses you can deduct based on your yearly income.

“Long-term care for the disabled and the elderly is expensive to provide. But it is to government’s advantage to offer tax incentives for people who buy long-term care insurance policies. The federal government and the states recognize that you either depend on families and friends, pay for it yourself, or turn to government programs like Medicaid.”

Premiums for long term care insurance can be treated as medical expenses for purposes of the medical deduction. The amount of premiums taken into account is limited according to your age at the end of the year:

Your age at the end of 2013:
• Under 40: $360.
• Between 40 but under 50: $680.
• Between 50 but under 60: $1,360
• More than 60 but less than 70: $3,640
• More than 70 years of age: $4,550.

Payments made under a long-term care policy are tax free when used to pay long term care expenses. Periodic payments used for any other purpose are tax free up to a set dollar limit. This limit will be $320 per day in 2013.

Your employer may give you the opportunity to contribute some of your paycheck to a medical flexible spending arrangement (FSA). The money you put in is not taxable to you. For example, if you earn $40,000 but choose to put $2,000 into an FSA, you’re taxed only on $38,000. For 2013, the contribution limit is capped at $2,500. After 2013, this cap will be adjusted for inflation. Previously, the limit had been set by your employer.

“Remember, the earlier you purchase a policy the healthier you are and the more likely you are to qualify for insurance,” says John Sherman, president of LTC Experts. “People who have serious chronic conditions may find their rates to be really high or they may even be uninsurable.”

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