Question

A TSB (Tax Saver Benefit) plan allows you to put money into an account at the beginning of the calendar year that can be used for medical expenses. This amount is not subject to federal tax (hence the phrase TBS). As you pay medical expenses during the year, you are reimbursed by the administrator of the TBS until the TBS account is exhausted. From that point on, you must pay your medical expenses out of your own pocket. On the other hand, if you put more money into your TBS account than the medical expenses you incur, this extra money is lost to you. Your annual salary is $80,000 and your federal income tax rate is 30%. Assume that your medical expenses in a year are normally distributed with mean $2000 and a standard deviation $500. Build a simulation model in @Risk in which the output is the amount of money left to you after paying taxes putting money into a TBS account and paying any medical expenses. Experiment with the amount of money put into a TBS account using RISKSIMTABLE. Vary the amounts in the TBS from $1000 to $3000 in increments of $250.

Answer 1

Introduction - Purpose of this study is about calculate tax amount, deductions in federal taxation in medical expenses which are exempt from taxation, TSB Account for deposits in case of tax saving purposes.

Requirements-

1. TSB(Tax Saving Benefits) Account

2.Federal Income tax Calculator for calculations

3. Formulas required

Average = (mean devaition + standard deviation)/100

simple addition and subtraction is required to subtract and amounts

Procedure Followed - Calculate federal tax return which is 30% of annual salary. Calculate medical expenses. Deposit amount according to expenses in acccount. You can claim for medical expeses $1250 by reductions in taxation would be returned.

Working Part

TSB plan allows that put money into account at starting of a year, Can be used for medical expenses. this money is not directly used for payments. A person paid amount from his own money and further claim for exempt money for medical expenses under TSB.

Annual salary is $80000

federal income tax rate is 30%

taxation amount is 80000*30/100 = $24000

money left after taxation is $56000

Deposited amount in TSB account vary between $1000 to $3000.

medical expenses are

normally distributed with $2000 mean deviation and $500 standard deviation

Average = (2000 + 500)/2 =2500/2 =$1250

TBS amount varies from $1000 to $3000 in increments of $250. $1000 + $250 increaments is enough to claim for $1250 medical expenses. Extra amount varies from $1001 to $3000 will lost.

Tax amount after medical expenses reduction will be $1250

56000+1250 = $57250 is in account after taxation.