To offset inflation, the Internal Revenue Service will increase the amount you can deduct on your federal income taxes for the long-term care insurance premium you pay in 2013.
Long-term care insurance deductions are significant for a couple of reasons, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI) trade organization. “The first is there are fewer and fewer available tax deductions that provide future benefits. You have tax-deferred savings and retirement plans, and this is pretty much the equivalent of that.” (See: "Leaner and meaner: 7 must-know changes in long-term care insurance.")
Long-term care insurance deductions “are very significant for small business owners who have the most advantageous rules…providing them with full tax deductibility not available to individuals,” he says. “Business owners may be able to fully deduct the cost, even if they use an accelerated payment plan, which provides paid-up, long-term care insurance when they retire and are no longer deriving income.”
According to the AALTCI, about eight million Americans own long-term care insurance and several hundred thousand new policies are sold annually.
Long-term care insurance often is associated with aging and disabilities. It consists of a variety of services, which may include help using the restroom or performing other day-to-day tasks. Health insurance and Medicare usually won’t pay for this type of assistance. According to the National Clearinghouse for Long Term Care Information, you have nearly a 70 percent chance of needing long-term care after you turn 65. (See: "Buyer beware: tips for buying LTCI.")
Slome notes that many people don’t deduct medical expenses in middle age, because they are not able to meet the required IRS cost threshold. A higher percentage do so after retirement, which means their long-term care insurance premiums will more likely be deductible after age 65.
Slome says the amount you are allowed to deduct from your taxes for long-term care insurance rises as you age. In 2013, taxpayers 40 and younger will be allowed to count as much as $360 in costs as medical expenses. Those 70 and older will be allowed to count as much as $4,550 for medical expense deductions. (See: "Health and life insurance tips for the sandwich generation.")
AALTCI studies have found that the cost for long-term care insurance can vary widely, even for policies with the same amount of coverage. That’s why it’s important to compare insurance quotes for the best deal. According to Slome, one method for cutting your costs is to pay premiums annually rather than making a payment each month. A 55-year-old who pays once a year typically will save 8 percent over a person the same age who pays monthly.
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