Sole proprietors can deduct the full premium paid for LTC coverage they provide their employees. With respect to their own coverage, the sole proprietor can deduct 100% of the eligible long term care premium, which is age based. Long-term care insurance qualifies as accident and health insurance. "Eligible long term care premium" is defined as follows:
The amount that can be used in calculating the expense deduction is limited to the lesser of actual premium paid, or "eligible long term care premium." defined as follows:
| Attained Age before Close of Taxable Year |
Allowable Deduction for tax year 2009 |
(for 2008) | ||
| 40 or Younger | $320 | $310 | ||
| 41 through 50 | $600 | $580 | ||
| 51 through 60 | $1,190 | $1,150 | ||
| 61 through 70 | $3,180 | $3,080 | ||
| 71 and older | $3,980 | $3,850 | ||
There is no 7.5% of AGI threshold requirement.
A sole proprietor can deduct the full premium paid for LTC coverage by hiring his/her spouse as an employee and providing family coverage for the employee/spouse. The employer/spouse is then covered by the plan as a member of the employee’s family. If the employee/spouse is a bona fide employee, the cost of the coverage is fully deductible by the employer/spouse and excludable from the employee/spouse’s gross income.
Note: Before making tax decisions about long-term care insurance it is essential that you consult with your attorney, accountant, or other tax professional, for advice regarding your own personal situation.