Long-Term Care Self-Employed Tax Deductibles

(The answer may surprise you)

Individual long term care tax deductibles

It’s no secret that most self-employed individuals like to deduct what they can to lower their annual tax payout to good ole Uncle Sam. 

What do you really know about your long-term care insurance policy from a tax deduction standpoint?  And what should you know as a self-employed person?  That’s exactly what we are going to find out — read on. 

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Tell Me about Long-Term Care Insurance

We are here to do just that, so let’s start with the basics.  Long-term care insurance is an insurance product used to pay for your long-term care expenses.  The benefits and amounts are set by the policyholder and pay for things such as: 

  • Assistance with bathing
  • Assistance with dressing
  • Assistance with toileting (getting off and on the toilet)
  • Assistance with transferring (transferring in and out of bed)
  • Assistance with eating

It sounds pretty bleak, we know. But just because it’s not the best topic to discuss doesn't mean we should brush it under the rug. We discussed the types of care, now let’s discuss where this care will take place and how.  

Your policy will pay for an array of long-term care expenses in various facilities and we will list those next. 

  • Alzheimers facilities care
  • In-home care
  • Nursing home care 
  • Respite care
  • Hospice care

You should know what long-term care insurance is now. Next, let’s find out about everyone’s favorite topic — taxes. 

Are Long-Term Care Policy Premiums Tax Deductible if Self-Employed?

Are Long-Term Care Policy Premiums Tax-Deductible

Yes, in fact, it’s one of the biggest and best tax deductions for the self-employed individual there is.  Do you like what you are hearing?  We thought so, and there is even more good news coming. 

Did you know that as a self-employed individual, you can qualify to deduct 100% of your health expenses?  This includes your long-term care insurance premium because the government groups that in as a medical expense.

It doesn't stop there. If you are self-employed, you can also deduct the health expenses for your spouse and your children, too.  We are talking about potentially huge savings, and to think it’s all for owning your own business.  What a nice little perk for paving a way for yourself and living the American dream. 

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What Are the Differences in Tax-Deductibility if You’re Not Self-Employed?

Great question and we have the answer.  If you are not self-employed or maybe haven’t decided to take the leap into self-employment just yet, we applaud you for weighing your options.  

Taxes for the self-employed individual are a lot to think about.  After all, if you are self-employed that means you only have YOU to depend on when it comes to paying your taxes.  No more boss breathing down your neck, but also no more employer-paid taxes on your behalf either.  

If you are not self-employed, then your long-term care policy may still be tax-deductible but definitely not as much as the self-employed person’s.  There is a mathematical equation to figure it out and we will go over that below. So break out the calculator. 

First, you want to be sure you have a tax-qualified long-term care insurance policy.  You then will need to make sure you are in the habit of itemizing your medical expenses.  Once you have your total itemized medical expenses, add that to your annual long-term care premium.  

Now, match your total against your federal income tax return.  If the total of your medical expenses plus your long-term care annual premium is more than 10% of your adjusted gross income, then you can start deducting.  If not, then well, you gave it a good shot. 

Traditional vs. Hybrid Policies and Self-Employed Tax-Deductions

It’s important to know the basics. In the spirit of laying a solid foundation, we need to know what a traditional long-term care policy and a hybrid long-term care policy are first. 

Traditional long-term care insurance policy:  This policy is just how it sounds, traditional.  It's your basic policy where you pay in a monthly, quarterly, semi-annual or annual premium.  When the time comes that you should need long-term care, then your benefits will start — most of the time from day one. 

The traditional long-term care policy can be tax-deductible as long as it’s a tax-qualified policy.  For the non-self-employed individual, the tax-deductibility falls to that mathematical equation we discussed earlier.  If you are self-employed and qualify, then up to 100% of the annual premium can be tax-deductible.  Yipee, that's some good deductibility.

Hybrid long-term care insurance policy: This policy is a hybrid and “linked” to a paid-up whole life policy or an annuity.  These hybrid policies have some great benefits, such as allowing you to get your full policy premium back if you change your mind and decide you no longer want the policy.  

The downside is a lot of these policies you have to pay in full upfront.  Yep, you read that right, the entire premium is due.  That premium can be upwards of $100,000 or more. 

Hybrid policies are generally not tax-deductible if the premiums paid for long-term care coverage are deducted from the life insurance policy’s cash value.

Does It Depend on What State You Live in?

Every state has its own tax laws, so it's true there could be some differences depending on what state you reside in, and if the state laws have any impact on your deductibility as a self-employed individual.  We recommend speaking with your independent insurance agent and your local tax advisor on tax law specifics for your state. 

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100% Tax-Deductible, Sign Us Up!

We hear you!  If you can deduct up to 100% of your long-term care traditional policy premiums, then why in the world would you not purchase one as a self-employed person?  That’s almost as good as free money, and it’s for an even better cause — your long-term care.  

We have plenty of fantastic independent insurance agents that are not only knowledgeable in long-term care insurance, but a lot of them work with local CPAs and tax advisors.  This allows them to offer the best possible care for their clients.  

Independent insurance agents work for you, on YOUR behalf.  They fight for your rights to good coverage for a fair price, and they like it too.  Independent insurance agents know your time is valuable. That's why they do all the heavy lifting and talk with multiple carriers for you. 

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Lenenberg, Jack J.D. 2019 Long Term Care Insurance Tax Deduction. https://longtermcareinsurancepartner.com/long-term-care-insurance/2019-long-term-care-insurance-tax-deduction