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Level 6

Deducting long term care expenses

In previous years I deducted LTC premiums as part of medical expenses.  This year I am not itemizing.  I have K-1 income from a partnership. I get subsidized health insurance through my spouse's employer but we pay long term care insurance premiums on our own by check. Can I enter the premium in the TT box for that in the K-1 section. Since I am not itemizing this year it makes a significant difference in my tax.

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Level 14

Deducting long term care expenses

here are  the 'gotcha's - as there multiple

 

you stated in your original comments that "I get subsidized health insurance through my spouse's employer"  but the real issue is whether her employer offers a LTC plan, whether you participate or not. 

 

and on page 23 of pub 535 it states (left column): 

 

"You can’t take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you didn’t actually participate."

 

it further states, "These rules are applied separately to plans that provide long-term care insurance and plans that don’t provide long-term care insurance. "

 

if your spouse's employer offers LTC benefit plans, you can't deduct the premiums.

 

so let's assume her employer doesn't offer LTC plan benefits, then it goes back to your position in the partnership. See page 6

 

One of the following statements must be
true.
• You were self-employed and had a net
profit for the year reported on Schedule C
(Form 1040), Schedule C-EZ (Form 1040),
or Schedule F (Form 1040).
You were a partner with net earnings from
self-employment for the year reported on
Schedule K-1 (Form 1065), box 14, code
A.
• You used one of the optional methods to
figure your net earnings from self-employment on Schedule SE.
• You received wages in 2018 from an S corporation in which you were a

 

I suspect the bold bullet is germane since you were posting a k-1 but that is a guess on my part.  Do you have net earning with a Code A in Box 14?  If no, then there is no deduction possible

 

and then there is this 'gotcha'... you stated you are paying the premium yourself but did not state whether the partnership is reimbursing you; if they are not reimbursing you, it's not deductible. (page 21 in the middle column)

 

• For partners, a policy can be either in the name of the partnership or in the name of  the partner. You can either pay the premiums yourself or the partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed
payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income.

so what the IRS is really saying is that you can treat the premium as a pre-tax benefit of the partnership if the partnership declares income equal to the premium and then you deduct the premium so it's effectively a "pre-tax" payment no different than the pre tax medical premium benefit your spouse probably enjoys via her employer.

 

But if you simply decided to take out an LTC policy that is irrespective to an employer or partnership benefit, then it can only be deducted as an itemized deduction on Schedule A subject to the a) the premium limit for your age bracket b) to the extent it exceeds 7.5% of your AGI and c) to the extend you itemize in the first place 

 

is that enough "gotcha"s? 

9 Replies
Level 14

Deducting long term care expenses

What would be your rationale to change the k-1recived from the partnership? (Other than you want a deduction!)

That form is also sent to the IRS by the partnership so any Mis match is likely to surface and be audited

Even last year only the medical bills that exceeded 7.5% of your AGI was deductible - are you sure that was the case in 2017?

Level 6

Deducting long term care expenses

I’m not changing the K-1. I am entering each box exactly. After entering the data The Turbo Tax questionnaire asked if we paid LTC premiums. If I check yes and enter the premiums I get a reduction in tax. Does that constitute changing the K-1? Why is TT asking?
Level 14

Deducting long term care expenses

see this link - appears this is why you are seeing the question as part of the K-1 input 

 

https://ttlc.intuit.com/questions/4307972-can-i-deduct-long-term-care-insurance-premiums-and-i-am-in...

 

from what you have stated so far, appears the input should be zero.  

Level 6

Deducting long term care expenses

I see a different TT discussion for 2018:  https://turbotax.intuit.com/tax-tips/home-ownership/deducting-health-insurance-premiums-if-youre-sel...  This one says: "

most self-employed taxpayers can deduct health insurance premiums, including age-based premiums for long-term care coverage. Write-offs are available whether or not you itemize, if you meet the requirements.

If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental and qualifying long-term care insurance coverage for yourself, your spouse and your dependents. This health insurance write-off is entered on page 1 of Form 1040, which means you benefit whether or not you itemize your deductions.

Unlike an itemized deduction, this deduction treatment is beneficial because it lowers your adjusted gross income (AGI). Having lower AGI can reduce the odds that you’ll be affected by unfavorable phase-out rules that can cut back or eliminate various tax breaks. Keep in mind that this deduction treatment also means you can’t deduct the premiums when you calculate your self-employment tax liability."

 

When I look at the form view in TT I don't see where the deduction is coming in but my tax drops about $2K when I enter the LTC premiums.  I would be comfortable just taking the drop and see how I fare but I am worried that I am missing a simple gotcha.  As I understand this, the deduction does not apply if you get a subsidized health plan (which we do) but the wording in TT addresses health insurance and/or long term care.  Our long term care is paid by check, not an employer program.  I looked at IRS Publication 535 which covers this but it left me confused.  It is clear that to deduct health insurance premiums the plan must be "established under the business."  We don't qualify.  But after that it address Medicare Part B premiums and Long Term Care premiums.  To me these appear to be separate matters but the language is confusing.  What ever happened to the government efforts to use plain language? 🙂   Pub 535 is here:  https://www.irs.gov/pub/irs-pdf/p535.pdf

Level 14

Deducting long term care expenses

here are  the 'gotcha's - as there multiple

 

you stated in your original comments that "I get subsidized health insurance through my spouse's employer"  but the real issue is whether her employer offers a LTC plan, whether you participate or not. 

 

and on page 23 of pub 535 it states (left column): 

 

"You can’t take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you didn’t actually participate."

 

it further states, "These rules are applied separately to plans that provide long-term care insurance and plans that don’t provide long-term care insurance. "

 

if your spouse's employer offers LTC benefit plans, you can't deduct the premiums.

 

so let's assume her employer doesn't offer LTC plan benefits, then it goes back to your position in the partnership. See page 6

 

One of the following statements must be
true.
• You were self-employed and had a net
profit for the year reported on Schedule C
(Form 1040), Schedule C-EZ (Form 1040),
or Schedule F (Form 1040).
You were a partner with net earnings from
self-employment for the year reported on
Schedule K-1 (Form 1065), box 14, code
A.
• You used one of the optional methods to
figure your net earnings from self-employment on Schedule SE.
• You received wages in 2018 from an S corporation in which you were a

 

I suspect the bold bullet is germane since you were posting a k-1 but that is a guess on my part.  Do you have net earning with a Code A in Box 14?  If no, then there is no deduction possible

 

and then there is this 'gotcha'... you stated you are paying the premium yourself but did not state whether the partnership is reimbursing you; if they are not reimbursing you, it's not deductible. (page 21 in the middle column)

 

• For partners, a policy can be either in the name of the partnership or in the name of  the partner. You can either pay the premiums yourself or the partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed
payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income.

so what the IRS is really saying is that you can treat the premium as a pre-tax benefit of the partnership if the partnership declares income equal to the premium and then you deduct the premium so it's effectively a "pre-tax" payment no different than the pre tax medical premium benefit your spouse probably enjoys via her employer.

 

But if you simply decided to take out an LTC policy that is irrespective to an employer or partnership benefit, then it can only be deducted as an itemized deduction on Schedule A subject to the a) the premium limit for your age bracket b) to the extent it exceeds 7.5% of your AGI and c) to the extend you itemize in the first place 

 

is that enough "gotcha"s? 

Level 6

Deducting long term care expenses

Thank NCperson.  You covered all my bases.  There are earnings in box 14A which would qualify.  But the partnership is not reimbursing the premiums so no guaranteed payments for those premiums.  It sounded to good to be true because it was.

Level 6

Deducting long term care expenses

This raises a question.  The TT questionnaire makes it easy and logicall to enter the LTC costs.  The help screens cautioned me away from health insurance costs but not LTC.  If LTC premiums mist be backed up by a box 4 guaranteed payment, why doesn't TT check for an entry in that box that would account for the amount claimed for premiums?

Highlighted
Level 14

Deducting long term care expenses

Because TT is not perfect and it is not a common situation - very few probably fall into that small sliver of a category !!!!!!!
Level 6

Deducting long term care expenses

As I noted above, I was hanging my hat on a bit of ambiguity in the 535 language: " I looked at IRS Publication 535 which covers this but it left me confused.  It is clear that to deduct health insurance premiums the plan must be "established under the business."  We don't qualify.  But after that it address Medicare Part B premiums and Long Term Care premiums.  To me these appear to be separate matters but the language is confusing.  What ever happened to the government efforts to use plain language? "

 

I think your reading that the "established" requirement applies to basic health insurance, Medicare premiums, and LTC premiums makes more sense than my wishful thinking.  I was testing Free Tax online to see how it compared to TT in ease of use and thoroughness and went back to see why I had not entered the LTC benefits when I first ran through it.   I noticed that when it got to the question regarding insurance it asked something along the lines of "Did you pay the premiums for health insurance or long term care insurance under a plan established y the business?"  That language led me to pass on by.