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."