Self-Employed and Small Business Long Term Care Insurance DeductionAs a business owner, you may be able to deduct 100% of your medical, dental, and qualified Long Term Care Insurance for yourself, your spouse, and your dependents if you fit into one of the following:
- You are a self-employed individual with a net profit reported on Schedule C, C-EZ, or F.
- You are a partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), box 14, code A.
- You are a shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2.
The insurance plan must be established under your business. You may be allowed this deduction whether you paid the premiums yourself, or your partnership or S corporation paid them, and if you included the premium amounts in your gross income. Take the deduction on line 29 of Form 1040.
Here's a 2010 MarketWatch article that also provides some valuable tips on medical deductions.
What is qualified Long Term Care Insurance?
Qualified Long Term Care Insurance is an insurance contract that only provides coverage for qualified Long Term Care services. The contract must meet all the following requirements:
- It must be guaranteed renewable.
- It must stipulate that refunds (other than refunds on the death of the insured or complete surrender or cancellation of the contract) and dividends under the contract be used only to reduce future premiums or increase future benefits.
- It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed.
- It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses.
When figuring your deduction, you can include premiums paid on a qualified Long Term Care Insurance contract for yourself, your spouse, or your dependents. However, for each person covered, you can include
only the smaller of the following amounts.
- The amount paid for that person.
- The amount shown below (use the person's age at the end of the year).
- Age 40 or younger: $290
- Age 41 to 50: $510
- Age 51 to 60: $1,110
- Age 61 to 70: $2,950
- Age 71 or older: $3,680
What are Qualified Long Term Care services?
Qualified Long Term Care services include the following:
- Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services.
- Maintenance or personal care services.
The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner.
What is a chronically ill individual?
A chronically ill individual is a person who has been certified as being one of the following:
- An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence.
- An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
The certification must have been made by a licensed health care practitioner within the previous twelve months.
How do you exclude benefits received?
For information on excluding benefits you receive from a Long Term Care Insurance contract from gross income, see Publication 525.
Above Information obtained from the Internal Revenue Service Website on 01/01/2009
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