IRS Hikes ’08 LTC Deductibility Levels
These new deductibility level increases the value of a little-known secret: The cost of long-term care protection for small businesses is tax deductible.
The Internal Revenue Service (IRS) has announced increased deductibility levels for long-term care insurance policies purchased in 2008. Small business owners should take heed, because millions of small and mid-sized business owners are still aware that the cost of long-term care insurance protection for themselves and their spouse may be fully tax deductible. It’s amazing how few accountants understand tax deductibility and discuss it with their clients. It’s very rare that an accountant brings up the tax advantage of long-term care planning, so, it’s really an opportunity for your investment professionals and insurance agents to bring up the topic.
To get the tax benefit, small business owners can, just like large businesses, set up a C corporation, which offers tax planning and liability advantages. Once the C Corp is established, the small businesses can create what’s called an executive carve-out plan. The business sets up a provision in their minutes that the [LTC] benefit is provided for a specific group. For example, you could say you have to be an officer of the company and have been employed for 6 years; that would exclude any other employees. So now the business is using pretax dollars to buy LTC insurance for the owner and his or her spouse, and it’s fully tax deductible.
In addition to the federal tax deduction, many states now offer tax incentives for individuals purchasing tax-qualified long-term care coverage.
According to AALTCI, the deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term “medical care” are as follows: