YEAR END DEDUCTION OR TAX ON RETAINED EARNINGS?
GUEST COLUMN By Ira L. Barnett, LUTCF
OK. We’re coming to the end of the year and my C-corporation made more money than projected (surprise, surprise in this economy) and has a decision to make: take a tax hit to Retained Earnings or find a deduction to offset some of the profits.
The Federal government, anticipating the Baby Boomer’s need for extended healthcare services, as they age, and wanting to deflect high utilization of Medicaid, created HIPAA (OK, this isn’t the only reason).
HIPAA (The Health Insurance Portability and Accountability Act of 1996) affects how Long Term Care insurance (LTCi) premiums and benefits are taxed, but, in this context, the primary concern is deductibility of the premiums.
Hey, wait a minute, we’re Baby Boomers. Spouse and I are getting older and we can expect, as that happens, that one (or both) of us will develop a condition that doesn’t allow us to do the things we used to do as easily as we used to do them. In fact, we may need, on occasion, someone to give us a hand.
Since we’re a C-corporation, we have kind of a ‘Trifecta’:
1. I can deduct, as a business deduction, 100% of the cost of LTC insurance for myself
AND for Spouse.
2. The premiums paid are not includible as income on my/our personal tax return.
3. Benefits paid aren’t taxable, at time of claim.
Oh, by the way, I do NOT have to cover any other employee. I can pick and choose, and if I only want to cover myself and Spouse – it’s OK.
But, if we do cover another employee, we can give them a very reduced benefit plan (compared to ours), and maybe, get some accommodations on the premiums charged and/or the underwriting rules applied to all of us. Wow, this is getting better and better.
In fact, I need to call my brother-in-law. His firm is an LLC taxed as a corporation and he’s eligible also. Oh yeah, Cousin Lou has that not-for-profit, and he’s can do this too.
Guess the next step is to sit down (and quickly) with my accountant and attorney, and that LTC insurance specialist that was calling, and have a conversation (wonder why my financial planner didn’t bring this up?).
Ira L. Barnett, LUTCF has been in the financial services industry since 1980. He is consulting with CFP®’s, CPA’s, attorneys and stock brokers to help them integrate Long Term Care insurance into
their practices, not as an insurance product, but, as a risk management strategy,.
Ira’s practice is centered in Orange County, California and he can be contacted via e-mail at email@example.com or by telephone at either (847) 361-0030 or (714) 983-7901.
CIRCULAR 230 NOTICE: To comply with U.S. Treasury Department and IRS regulations, we are required to advise you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this e-mail, including attachments to this e-mail, is not intended or written to be used, and cannot be used, by any person for the purpose of (1) avoiding penalties under the U.S. Internal Revenue Code