NEW YORK (BankingMyWay) Taxpayers who pay for long-term care insurance and who don't take available deductions on that insurance are leaving money on the table that Uncle Sam is only too happy to grab.
Most American don't realize they can deduct long-term care insurance on their taxes, which means they're missing out on thousands of dollars in savings.
An individual can deduct as much as $4,660 for long-term care insurance premiums paid in 2014, says Jesse Slome, director of the American Association for Long Term Care Insurance. The maximum for 2013 is $4,550.
In general, the older you are, the easier it is to qualify for the deduction.
"During their working years, individuals rarely qualify for the long-term care insurance tax deduction. After retirement, qualifying is typically easier," Slome says. According to IRS rules, long-term care insurance is considered a medical expense and thus is "tax-qualified" for a deduction based on the taxpayer's age.
Someone older than 50 but younger than 60 can deduct up to $1,400, or $2,800 for a same-age couple, Slome says. An individual age 70 or older can include up to $4,660 (or $9,320 for a same-age couple). The amounts are indexed for inflation and increase each year. According to IRS figures, 60% of taxpayers over the age of 65 who itemized deductions in 2011 were able to take the deduction.
"During your working years, it's hard to take advantage of the deduction. Your salary or self-employed income makes meeting the IRS-required threshold difficult," he says. "But after retirement your salary income drops or disappears completely, making it far more likely you'll be deducting medical expenses."
It's cheaper to buy long-term care insurance while you're in your working years, because in general the younger you are, the cheaper the long-term care insurance costs, Slome says.
"After retirement owning long-term care insurance can help lower your tax bill," Slome says. "But it's best to obtain this coverage prior to retirement because the costs are lower and you are more likely to meet health qualification requirements."
Slome calls this the "buy now, deduct later" strategy essentially it's a good move for your Golden Years and a future tax deduction.
If you're paying for long-term care insurance, check with a good tax accountant before April 15 to see how much you can save on the deduction. It could be the best (and most overlooked) move you'll make this tax season.