Question

1. Clem is married and is a skilled carpenter. Clem’s wife, Wanda, works part-time as a substitute grade school teacher. Clem paid self-employment tax of $14,000 (the employer portion is $7,000) and Wanda had $4,000 of Social Security taxes withheld from her pay. Determine the amount of Clem’s expenses that are deductible for AGI this year.

2.Lionel is an unmarried law student at State University Law School, a qualified educational institution. This year Lionel borrowed $24,000 from County Bank and paid interest of $1,440. Lionel used the loan proceeds to pay his law school tuition. Calculate the amount Lionel can deduct for interest on higher education loans. Lionel’s AGI before deducting interest on higher education loans is $82,000.

3. Simpson is a single individual who is employed full-time by Duff Corporation. This year Simpson reports AGI of $49,000 and has incurred the following medical expenses:  

                           Dentist charges                                                                     $      900
                           Physician's charges                                                               1,800
                           Optical charges                                                                         500
                           Cost of eyeglasses                                                                    300
                           Hospital charges                                                                    2,100
                           Prescription drugs                                                                    250
                           Over-the-counter drugs                                                            450
                           Medical insurance premiums (not through an exchange)         775

          Calculate the amount of medical expenses that will be included with Simpson’s itemized deductions after any applicable limitations.

Answer 1

1.$7,000 is deductible for AGI of this year, because Emplyoer's portion of self employment tax is deductible but Social security tax withheld is not deductible for calculation of AGI.

2.Lionel Is not allowed to deduct any Interest expense on higher education loan because deductible interest exp is equal to amount of interest paid up to $2,500- phased out amount , here lesser amount is $1,440 which is phased out amount, i.e $1,440-$1,440 = $0 is decuctible.

3.Only Over the counter drugs are not included while calculating itemized deduction for medical expenses because they are not deductible.

[$900+$1,800+$500+$300+$2,100+$250+$775] - [10% of AGI i.e $49,000] = $1,725 is a itemized deduction for medical expenses.