Long Term Care Insurance Deduction for Self Employed - Tax Benefits Explained

As a self-employed individual, you're likely no stranger to managing your own finances and taxes. One tax benefit you may be eligible for is the long term care insurance deduction, which can help offset the costs of long term care insurance premiums.

The IRS allows self-employed individuals to deduct up to 40% of their long term care insurance premiums as a medical expense on their tax return. This means you can save up to 40% of your premiums on your taxes.

For example, if you pay $1,000 per year in long term care insurance premiums, you can deduct $400 of that on your tax return, saving you $160 in taxes.

For self-employed individuals, long-term care insurance (LTCI) premiums can be a valuable tax deduction. LTCI premiums may be tax-deductible as a medical expense, provided certain conditions are met, including exceeding the 7.5% threshold of adjusted gross income (AGI) and meeting age-based limitations.

The IRS sets annual limits on the amount of LTCI premiums that can be included as deductible medical expenses, which increase with age. The 2025 limits are as follows:

If you itemize your taxes and meet the 7.5% AGI threshold, you may deduct your premiums subject to age-based limitations.

State deductibility rules can be a bit confusing, but don't worry, I'm here to break it down for you. Many states offer tax incentives to encourage the purchase of long-term care insurance (LTCi).

These incentives can include tax credits or deductions, but the rules vary from state to state. For example, some states offer the same tax treatment as federal law, while others have different requirements.

The American Association for Long-Term Care Insurance provides a summary of state-specific tax information, but it's essential to consult a tax advisor to determine your eligibility.

Currently, a number of states offer long-term care insurance tax deductions and/or credits for people who purchase tax-qualified LTC policies. These state deductions and credits are in addition to those offered by the federal government.

Here's a general overview of the tax deductibility rules for LTCi premiums:

For self-employed business owners, eligible long-term care premiums may be 100% tax deductible when the business purchases policies for the owner, spouse, dependents, or employees.

Hybrid long-term care policies can offer tax deductibility, but only if they meet specific requirements. The IRS requires that the long-term care premiums be separately identified from the life insurance premiums.

To be eligible for tax deductibility, hybrid policies must have a contract that includes separately identifiable premiums for the life insurance component and the long-term care components. The long-term care agreements must not have any cash value, and the premiums collected for these agreements must be paid directly to the insurance company.

Some hybrid policies that can offer tax deductibility include OneAmerica Asset Care, Securian SecureCare III, and Lincoln Moneyguard is not one of them. These policies have been structured to meet the IRS requirements.

Here are the age-based limits for eligible long-term care premiums that can be deducted:

Note that these limits apply to individuals who itemize their taxes and have medical expenses that exceed 7.5% of their adjusted gross income.

Self-Employed Individuals can deduct 100% of their out-of-pocket long-term care insurance premiums, up to the Eligible Premium amounts listed above [IRC 162(l)]. This deduction is available regardless of whether their total medical expenses exceed the 7.5% AGI threshold, provided they show a net profit for the year.

To qualify for this deduction, the self-employed individual must pay the premium directly, and it's not necessary to meet a AGI threshold. However, if the self-employed individual is eligible to participate in a subsidized LTCI plan, they may not deduct LTCI premiums during any calendar month in which they or their spouse is eligible to participate.

The deductible amount includes eligible premiums paid for spouses and dependents, and it's not necessary to itemize deductions to take advantage of this self-employed deduction.

As a self-employed individual, you're likely no stranger to managing your finances and seeking tax deductions wherever possible. You can deduct eligible long-term care premiums for yourself, your spouse, and your dependents from your business income, making it a great way to reduce your tax liability.

If you're under 40, you can deduct up to $480 in eligible long-term care premiums. This amount increases with age, so if you're between 41 and 50, you can deduct up to $900.

Here's a breakdown of the eligible long-term care premium deductions for different age groups:

To qualify for these deductions, you'll need to itemize your medical expenses on your federal income tax return, and your combined medical expenses must exceed 10% of your adjusted gross income.

As a self-employed individual, you may be wondering how long-term care insurance (LTCi) premiums can benefit your business and personal finances. For partnerships, LLCs, and Subchapter S Corporations, the tax treatment of LTCi premiums is a bit more complex.

Members of a partnership, LLC, or Subchapter S Corporation can deduct up to 100% of the age-based Eligible Premium, as listed in Table 1. This means you can deduct the full premium amount, regardless of your adjusted gross income (AGI) threshold.

In a partnership situation, the owner/partner who has a spouse who is a true employee can deduct the actual (full) premium for that spouse's policy. This includes any shared benefit rider, which would be included in the deductible premium amount.

The key takeaway for partnerships, LLCs, and Subchapter S Corporations is that you can deduct up to 100% of the Eligible Premium, without meeting an AGI threshold.

Here's a quick summary of the tax treatment for partnerships, LLCs, and Subchapter S Corporations:

Remember to consult with a tax professional to understand how these rules apply to your specific situation.

As a self-employed individual, you have more flexibility when it comes to deducting long-term care insurance premiums. You can deduct 100% of your out-of-pocket LTCI premiums, up to the Eligible Premium amounts listed in Table 1, regardless of your adjusted gross income (AGI).

Self-employed individuals can deduct LTCI premiums for themselves, their spouses, and dependents, without meeting the 7.5% AGI threshold.

However, if you or your spouse is eligible to participate in a subsidized LTCI plan, you may not deduct LTCI premiums during any calendar month in which you or your spouse is participating in the plan.

Here's a breakdown of the eligible LTCI premium amounts for self-employed individuals, based on age:

Keep in mind that the portion of LTCI premiums that exceeds the Eligible Premium amount is not deductible as a medical expense.