Long-Term Care Strategy for Business Owners

Background

Companies set up as an S-corp, partnership or sole proprietorship have tax advantages available to them they might not be aware of. When one of these companies implements a long-term care plan, they would be wise not to overlook taking a deduction.

Individuals buying a long-term care policy can’t take a deduction unless they meet certain requirements based on income and overall medical expenses. Businesses, however, can ignore those limitations, making a deduction much more likely—and more valuable.

Profile

A 55-year-old couple owns an S-corp. They purchase a long-term care policy for $15,000 per year for 10 years. Both clients qualify for the best rate class. The policy includes a daily benefit of $200, a 3-year benefit period and 3% compound inflation.

How it works

By choosing to run the premiums through the business, the company pays the premium of $15,000 a year for 10 years which passes through as income to the couple. The individual takes an above-the-line deduction of $3,520, leaving $11,480 of the $15,000 as taxable income.

Assuming a 30% tax bracket, the couple would pay taxes of $3,444 in year one. That’s an annual tax savings of $1,056 by running it through the S-corp.

*Based on NGL’s EssentialLTC product, current as of May 2024