Tax Strategies for Business-Long Term Care Insurance
August 16th, 2014 at 4:36 PM
Strategy for C Corporation
Have your C Corporation provide company-paid qualified long-tern care coverage as an employee benefit for selected employees, such as yourself. This coverage is eligible for the same tax-advantaged treatment as a regular company-paid health insurance program. The result is the corporation can deduct 100% of the premiums as a business expense, and as a covered employee, you do not have to report any taxable income or any benefit payment you may receive under the policy.
The same tax advantages apply to company-paid coverage for your spouse and for your dependent parent or grandparent. You can also provide tax-favored long-term disability coverage for other family members who are employed by your corporation, and for other employees you want to provide with this extra benefit.
What about employees you would rather not cover? No problem. You do not need to provide coverage to them, because there are no nondiscrimination rules for long-term care insurance provided as an employee benefit.
Sole Proprietors and Single Member LLCs
Now, let’s say you operate your business as a sole proprietor or single member LLC. One tax saving strategy to employ is to hire your spouse as a bona fide employee of the business. Then, arrange to have your business provide health insurance coverage and long-term care insurance as a fringe benefit for your employee-spouse. Your spouse can elect family coverage that protects you and other family members who are dependents. Under this arrangement, you can deduct 100% of the premiums on Schedule C. One note-make sure the value of the insurance coverage, plus any other compensation given to an employee is reasonable for the work performed.
If cannot hire your spouse as an employee, you can still claim the self-employed health insurance deduction for the long-term care. This is an “above the line” deduction entered on Page 1 of form 1040. The advantage is that you do not need to itemize this deduction subject to the 10% threshold.
If you run your business as an S Corporation, the company can pay for qualified long-term care insurance premiums on behalf of shareholder-employees, including you. If you are a more-than-2% shareholder, the company-paid premiums that benefit you are treated as additional taxable wages on your W-2. The extra amount can be deducted by your S Corporation and is exempt from the Social Security and Medicare taxes with proper planning. You claim the write-off on Form 1040 equal to 100% of the allowable age-based premium.
These rules can be a bit cumbersome, so be sure to consult with your tax and employee benefit professional.