Many Americans do a poor job of planning for their future. It’s true. As a result an increasing number of individuals and families look to the federal and state government for solutions. Most often the solutions are insufficient.
That is why legislators at both the federal and state levels offer significant tax incentives to encourage Americans to plan. From tax deductions for retirement savings options to deductibility for home mortgages, all of these are ways government entities are giving people incentives to be self-sufficient,
As millions of Americans live longer lives, into their 80s, 90s and even beyond, the number of people needing long-term care continues to grow. Some 10 million Americans currently require long-term care services. Most force loved ones and family members into becoming their caregivers. Others are turning to taxpayers for aid.
Long-term care costs are now a significant budget line in many states. When dollars are spent caring for elderly, there are fewer dollars to pay for schools, police and the many other services a society requires. As a result, government officials have recognized the importance of educating Americans about the newfound need to plan for long-term care.
Tax-deductible retirement savings launched the 401(k) plan from relative obscurity into the most-popular way Americans save for retirement.
Tax-deductible LTC health insurance may do the same for the first generation of Americans who need to plan for living a long life.
Recognizing this fact, the Internal Revenue Service (IRS) has approved increased deductibility levels for insurance policies purchased in 2010 according to a just-issued report by the American Association for Long-Term Care Insurance, the industry trade group.
Some 8.25 million Americans currently own policies and several hundred thousand new individuals purchase protection each year according to the trade group. In addition to federal tax advantages, a number of states now offer tax deductions or credits to those who purchase LTC insurance protection. A credit is a dollar-for-dollar reduction in the actual cost of insurance.
Tax deductions are limited for individuals financial experts note. However, business owners may be able to fully deduct the cost for themselves and selected employees. In addition to the tax deductions, a number of insurers now are offering discounts to employers who offer coverage to as few as three employees.
There is still time to take advantage of tax deductions in 2009 and also benefit from the increased deductible limits for insurance next year. To accomplish this, the policy must be purchased prior to the close of the tax year and financial professionals recommend speaking to both your insurance and accounting professional.
The federal deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term ‘medical care’ are as follows:
2010 Long-Term Care Insurance Deductible Limits
Attained Age Before Close of Taxable Year
40 or less: Deductible Limit: $ 330
More than 40 but not more than 50: $ 620
More than 50 but not more than 60: $1,230
More than 60 but not more than 70: $3,290
More than 70: $4,110
Source: IRS Revenue Procedure 2009-50 (2010 Limits)
Consumer Tax Information Center
