Many states offer tax incentives to encourage the purchase of LTCi. Below is a general summary of state specific tax information for your reference. This information is current through December 2011 and is subject to change.
Taxpayers may need to meet state specific requirements to qualify for deductions or credits for LTCi. For information regarding the tax liability of a case, consultation with a tax consultant or legal advisor is recommended.
What The Coding Means
* = No Credit Or Deduction. No Broad-Based State Income Tax.
** = Same As Federal Tax Law (see above for details).
ALABAMA
Deduction Individuals are allowed an itemized deduction for qualified long term care insurance contract to the extent that the amount does not exceed specified limitations. These amounts are indexed. Businesses, whether incorporated or not, may deduct LTC insurance as reasonable compensation expenses. ALASKA*
No tax benefits presently. ARIZONA*
No tax benefits presently ARKANSAS**
Deduction A deduction is allowed to the limits provided in the federal Internal Revenue Code (see above for details) CALIFORNIA
Deduction A deduction is allowed to the limits provided in the federal Internal Revenue Code (see above for details) COLORADO
Credit A Credit is allowed for 25 percent of the premiums paid for long term care insurance during tax year for the individual and spouse. The Colorado credit is only applicable to thoise with federal taxable income of less than $50,000; to two individuals filing a joint return with a federal taxable income of less than $50,000 if claiming the credit for one policy; or less than $100,000 if claiming the credit for two policies. CONNECTICUT*
No tax benefits presently DELAWARE*
No tax benefits presently DISTRICT OF COLUMBIA
Deduction A deduction for long term care insurance premiums paid annually ius allowed from gross income provided that the deduction does no exceed $500 per year, per individual. It does not matter whether the individual files joiuntly and the LTC poilicy must meet District of Columbia's definitions. FLORIDA*
No tax benefits presently
GEORGIA*
No tax benefits presently HAWAII
Deduction Same as federal tax law, except subject to 7.5% of HI adjusted gross income, instead of federal adjusted gross income. IDAHO
Deduction A deduction is allowed for premium paid by a taxpayer for LTCi which is for the benefit of the taxpayer, a dependent of the taxpayer or an employee of a taxpayer and the amount can be deducted from taxable income to the extent the premium is not otherwise deducted by taxpayer. ILLINOIS*
No tax benefits presently INDIANA
Deduction Deduction up to full cost of premium paid for qualified LTCi for taxpayer and taxpayer's spouse paid in the taxable year. IOWA**
Deduction A deduction is allowed to the limits provided in the federal Internal Revenue Code (see above for details) KANSAS
Deduction For tax years beginning in 2005,a subtraction from federal adjusted gross income for $500 in the tax year 2005, increasing each year by $100 until 2010. After 2010, it is a $1000 subtraction from the federal adjusted gross income for premium costs for qualified LTCi. KENTUCKY
Deduction Deduction from adjusted gross income allowed for any amount paid during the tax year for LTC premiums. LOUISIANA
Credit A credit against the individual income tax is allowed for amounts paid as premiums for eligible long term care insurance. The amount of the credit equals 10 percent of the total amount of premiums paid each year by each individual claiming the tax credit and the policy must meet the specific qualification requirements. MAINE
Deduction The Superintendent of the State must certify the policy you purchase as a qualifying long term care policy. Then you are pemitted a deduction as long as the amount subtracted is reduced by the amount claimed as a deduction for federal income tax purposes. Sounds more complicated than it really is. Employers providing long term care benefits to employees may also qualify for a tax credit which follows a formula equal to the lowest of $5,000, 20 percent of the costs or $100 for each employee covered. MARYLAND
Credit Taxpayer is allowed a one-time credit against the state income tax in an amount equal to 100% of eligible LTCi premium paid. The credit may not exceed $500 for each insured, may not be claimed by more than one taxpayer with respect to the same individual and may not be claimed if the insured was covered by LTCi before July 1 2000. No carryover is allowed. For employers, a credit up to an amount equal to 5% of the costs incurred by the employer during the taxable year for providing LTCi as part of the benefit package. The credit may not exceed $5000 or $100 for each employee covered by LTCi under the benefit package. MASSACHUSETTS*
No tax benefits presently MICHIGAN*
No tax benefits presently MINNESOTA
Credit A credit is allowed for LTCi premiums equal to the lesser of: (1) 25% of premiums paid to the extent not deducted in determining federal taxable income; or (2) $100 (which equals $200 for married couples who file joint tax returns.)
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MISSISSIPPI
Credit A credit equal to 25% of premium costs paid during the taxable year for a qualified policy for self, spouse, parent, parent-in-law, or dependent. The credit cannot exceed $500. MISSOURI
Deduction Taxpayers may deduct 100% of all non-reimbursed amounts paid for qualified LTCi premiums to the extent such amounts are not included in itemized deductions. MONTANA
Deduction - Credit Montana offers both a deduction for entire amount of qualified LTCi premiums covering taxpayer, taxpayer's parents, grandparents & dependents. A tax credit is now allowed for for premiums paid for long term care insurance coverage for a qualifying family member. The amount of the credit shall be based on the taxpayer's adjusted gross income and can not exceed $5,000 per qualifying family member in a taxable year. Or, $10,000 for two or more family members. NEBRASKA
Deduction Nevada now permits a tax deduction for Long Term Care Savings Plan contributions of up to $2,000 per married filing jointly return or $1,000 for any otrher return to the extent that it is not deducted for federal income tax purposes. NEVADA*
No tax benefits presently
NEW HAMPSHIRE*
No tax benefits presently NEW JERSEY
Deduction Deduction of LTC insurance premiums may be taken if they exceed 2% of adjusted gross income and cannot be reimbursed. NEW MEXICO
Credit / Deduction. New Mexico permits taxpayers who are age 65 and older and who are not a dependent of another taxpayer to claim a credit of $2,800 for medical care expenses which includes long term care insurance premiums paid for the filing taxpayer, spouse or dependents if expenses equal $28,000 or more within the particular taxable yeare (and so long as the expenses are nopt reimbursed). A deduction allows taxpayers an additional exemption of $3,000 for medical expenses if expenses (including the cost for LTC insurance) equal $28,000 or more within the taxable year and if expenses are not reimbursed or otherwise covered. NEW YORK
Credit Credit for 20% of premium paid for qualifying LTCi premiums. Taxpayer is permitted to carry over to future tax years any credit amount in excess of taxpayer�s tax liability for the year. Employers are eligible for a credit equal to 20% of the premiums paid during the tax year for the purchase of, or for continuing coverage under, a LTCi policy. The credit is not refundable and the credit may not reduce the tax to less than the minimum tax due. NORTH CAROLINA
Credit A credit is allowed for premiums paid on LTC insurance for taxpayer, taxpayer's spouse or dependent in an amount equal to 15% of the premium costs, up to $350 for each policy on which the credit is claimed as long as adj. gross income meets the following limitations: Married Filing Separately <$50,000; Single <$60,000; Head of Household <$80,000; Married Filing Jointly or Qualifying Widower <$100,000. NORTH DAKOTA
Credit A credit is allowed for premiums paid on LTC insurance for taxpayer and or spouse up to $250 within any taxable year. OHIO
Deduction Deduction of federally qualified LTCi premiums for taxpayer, taxpayer's spouse and dependents to the extent deduction is not allowed in computing federal adj.gross income. OKLAHOMA**
No tax benefits presently OREGON
Credit Credit equal to the lesser of 15% of premiums paid during the tax year or $500 for LTC insurance coverage for individual, dependent or parents. For employers, a credit of $500 is allowed for each employee covered by an employer-sponsored policy. PENNSYLVANIA*
No tax benefits presently PUERTO RICO*
No tax benefits presently RHODE ISLAND**
No tax benefits presently SOUTH CAROLINA**
No tax benefits presently SOUTH DAKOTA*
No tax benefits presently TENNESSEE*
No tax benefits presently TEXAS*
No tax benefits presently UTAH*
No tax benefits presently VERMONT**
No tax benefits presently VIRGINIA
Deduction Virginia statutes permit a deduction from federal adjusted gross income for the amount paid in long term care insurance premiums provided the individual has not claimed a deduc tion for federal tax puposes or a credit under Virginia tax code 58.1-339.11. This code permits a credit against the individual's income taxes that shall not exceed 15 percent of the amount of long term care insurance premium paid during the taxable year. And, the credit can not be claimed to the extent that the individual has claimed a deduction for federal tax purposes. This one is worth having your CPA decide as a tax credit can be worth far more than a tax deduction. WASHINGTON*
No tax benefits presently WEST VIRGINIA
Deduction Deduction for LTCi premiums covering taxpayer, taxpayer's spouse, parents and dependents to the extent the amount paid for LTCi is not deducted in determining federal income tax. WISCONSIN
Deduction Deduction allowed for taxpayer & taxpayer's spouse for 100% of the amount paid for a LTCi policy to the extent the same deduction is not taken for federal income tax purposes. WYOMING*
No tax benefits presently
What The Coding Means
* = No Credit Or Deduction. No Broad-Based State Income Tax.
** = Same As Federal Tax Law (see above for details).
If you would like to capitalize on tax advantaged savings available to those purchasing LTC insurance protection, now is the time to start the process. Click here to complete our simple online questionnaire and get the ball rolling.
Acknowledgements: The American Association for Long-Term Care Insurance does not provide tax advice and does not warrant the information provided herewith. As mentioned previously, always seek the counsel of a professional tax advisor.
Brokers must track and report cost basis to both you and the IRS
Anyone who has ever been baffled by calculating the net proceeds from the sale of an investment will find some relief, starting with the 2011 tax return due April 17. If you bought any stocks after January 1, 2011, and sold them later in the year, you should be receiving information from your broker shortly that tells you the adjusted cost basis of those stocks. Your adjusted cost basis, which affects the amount of tax you may owe on the sale, represents the original purchase price plus any commissions or other fees, and takes into account factors such as stock splits, corporate acquisitions or spinoffs, and reinvested dividends.
In the past, cost basis information has sometimes been available as a service; the Emergency Economic Stabilization Act of 2008 now requires all broker-dealers and other financial intermediaries to report the information on your 1099-B form. However, you won't be the only one to receive that information; your broker also is required to report the same information to the Internal Revenue Service. Individual taxpayers (or their tax preparers) will still be responsible for accurately reporting the net proceeds of a sale on their federal income tax returns, but the IRS will now have a better way to double-check those figures.
In some cases, you're still on your own this year
The new reporting requirements don't mean you can empty your files completely. Because they're being phased in, the rules don't apply to stocks bought before January 1, 2011, for which you'll still need to do your own calculations, or to securities held in retirement accounts. Cost basis reporting does go into effect this year for mutual funds and stock bought as part of a dividend reinvestment plan; however, it will apply only to shares bought after January 1, 2012, and will be reported on the 1099-B that will be available in 2013 for the tax year 2012. And cost basis for bonds, options, and other securities won't have to be reported until 2013, so those will still need to be monitored independently.
Brokers also will be required to report losses that are disallowed as a result of a wash sale (which occurs when shares are sold and then repurchased within 30 days). However, they only have to do so if the newly acquired securities are identical to the securities sold (meaning the securities share the same CUSIP identification number). They also are not required to report adjusted cost basis for wash sales when the purchase and sale transactions occur in different accounts.
You can tailor your reporting method to suit your tax situation
Investors sometimes use cost basis to help manage their tax liability on a securities sale. If you're one of them, the reporting requirements make it more important to determine in advance what accounting method you wish to use for each sale. Most broker-dealers will designate a default option to use if you do not specify a method. That default will typically be the so-called FIFO method (an acronym for "first in, first out"), which means that the first shares of a security purchased are considered the first shares sold. However, your broker might also allow you to specify LIFO ("last in, first out") or designate specific shares as the ones sold. In some cases, such as shares bought through a direct reinvestment program, using an average cost basis for all shares may be most convenient (most mutual fund companies already employ this method of calculating cost basis).
If you don't want to use your broker's default method, you may be able to put in a standing order specifying the method you want to use for all trades, or choose on a case-by-case basis; you may also authorize your financial professional to make that decision for you. The rules permit investors to change the designated method for a given trade until the settlement date (the date on which money actually changes hands, which for a typical stock sale is three business days after execution of the trade). After the trade settles, you cannot change your mind about the method used.
Brokers also will be required to report to the IRS the cost basis of a short sale in the year in which the short is closed (in the past, it was done for the year a short sale was opened).
If you have any questions, please contact me at dkdowell@dkdcpa.com