Agents overlook LTCI tax deduction strategy

Insurance agents often overlook discussing the benefits of future tax deductibility of long term care insurance premiums to millions of working age Baby Boomers, according to a prominent LTCI advocate.

Life & Health

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Insurance agents often overlook discussing the benefits of future tax deductibility of long term care insurance premiums to millions of working age Baby Boomers, according to a prominent LTCI advocate.
“An individual can deduct as much as $4,660 for long term care insurance premiums paid in 2014,” said Jesse Slome, director of the American Association for Long Term Care Insurance (AALTCI). The maximum amount for 2013 is $4,550. “During their working years, individuals rarely qualify for the long term care insurance tax deduction. After retirement, qualifying is typically easier.”
This is something most agents fail to bring up with their LTCI clients, according to Slome.
The Internal Revenue Service considers tax-qualified long term care insurance premiums a medical expense for individuals. The yearly maximum amount depends on the insured's attained age at the close of the taxable year. "Someone older than 50 but younger than 60 can deduct up to $1,400 ($2,800 for a same-age couple)," Slome said. An individual age 70 or older can include up to $4,660 ($9,320 for a same-age couple). The amounts are indexed for inflation and increase each year.
"During working years, it's hard for clients to take advantage of the long term care insurance tax deduction," Slome said. "Their salary or self-employed income makes meeting the IRS-required threshold (to deduct medical expenses) difficult." Only 22 percent of the 10.4 million tax returns filed by individuals between 55 and 65 who itemized deductions in 2011 had medical and dental expenses in excess of the limitation.
After retirement age the reverse is true. "Their salary income drops or disappears completely making it far more likely they'll be deducting medical expenses," Slome said. IRS data validates that nearly 60 percent of the 8.1 million tax filers age 65+ who itemize deductions had medical expenses in excess of the limitation.
"After retirement owning long term care insurance can help lower your clients’ tax bill," Slome said. "But, it's best to obtain this coverage prior to retirement because the costs are lower and thei client is more likely to meet health qualification requirements. The 'buy now-deduct later' strategy secures their protection. The future tax deduction is an extra benefit for their post-retirement years."
The Association has five online consumer guides offering the latest tips on reducing costs and maximizing benefits. They can be found at www.aaltci.org/guides and no sign-in information is required.

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