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Q1  A distribution is reported on Form 8853 Long-Term Care Insurance Contracts. Page 2 calculates any taxable portion.

 You may not  have any taxable income for the LTC depending on the situation.

1. If Box 3 is marked "Reimbursed Amount" and the policy is categorized as a Tax-Qualified Contract,

•  the amount of money received can generally be excluded from the income being reported. The insurance company can tell you if your policy is considered a Tax-Qualified policy.
• A tax-qualified long term care insurance contract qualifies for favorable federal income tax treatment. If the policy only pays benefits that reimburse you for qualified long-term care expenses you will not owe federal income tax on these benefits.

2. If Box 3 is marked "Reimbursed Amount" and you have a Non-Tax Qualified Contract, 

•  some or all of your benefits may be taxable. Again, the insurance company can tell you if your policy is considered a Non-Tax Qualified policy.
• A Non-Tax Qualified policy may result in a tax liability. Today, most long-term care policies are tax-qualified.

3. If Box 3 is marked "Per Diem" (which will happen for policies that are considered Indemnity policies) 

•  the amount you may exclude from taxable income being reported is limited.
• Because benefits were paid on a per diem (indemnity) basis, without regard to the actual long-term care expenses incurred; the amount of benefits that may be excluded from income is subject to a daily maximum amount.
• If this per diem (indemnity) limitation is exceeded, part of the benefits received may be taxable. The amount of the limitation increases every year. 

Q2. Long term care premiums are deductible as an itemized expenses each year.

See Publication 502, Medical and Dental Expenses, page 11 for full instructions on handling long term care and insurance. The whole pub is a quick read and well worth the time.