Question

Janice, age 32, earns $50,000 working in 2020. She has no other income. Her medical expenses for the year total $4,000. During the year, she suffers a casualty loss of $7,500 when her apartment is damaged by flood waters (part of a Federally declared disaster area). Janice contributes $10,000 to her church. On the advice of her friend, Janice is trying to decide whether to contribute $1,000 to a traditional IRA.

Complete the table to show the effect the IRA contribution would have on Janice's itemized deductions.

With IRA Contribution Without IRA Contribution Gross income $ $ Contribution to IRA (1,000) 0 AGI $ $ Itemized deductions: Charitable contribution $ $ Medical expenses $ $ Casualty loss $ $ Total itemized deductions $ $

The $1,000 IRA contribution would increase  Janice's itemized deductions by $.____ As a result, the $1,000 IRA contribution reduces her taxable income by $.____

Answer 1

	With IRA	Without IRA
Gross Income	50,000	50,000
Contribution to IRA	(1000)	-
AGI	49,000	50,000
Itemized DeductionsMedical ex
Charitable contribution	10,000	10,000
Medical expenses	325	250
Casualty Loss	2100	2000
Total Itemized Deductions	12425	12250

IRA would increase Itemized Deductions by $175 (12,425-12,250). as a result, the $1,000 IRA contribution reduces her taxable income by $ 175.

Working

Only medical expenses can be claimed that exceed 7.5%of AGI

In case Without IRA 7.5% of AGI= 3750

Medical expenses in excess of 7.5% is = 4000-3750= $250 is deductible

In case of with IRA 7.5% of AGI= 3675

Medical expenses in excess of 7.5% is = 4000-3675= $325 is deductible

in case of casualty loss

first $500 (standard deduction) is deducted from the loss = 7500-500= $7000 is the theft

Only those exceeding 10% of AGI can be claimed

In case Without IRA 10% of AGI= 5000

Casualty loss in excess of 10% is = 7000-5000= $2000 is deductible

In case With  IRA 10% of AGI= 4900

Casualty loss in excess of 10% is = 7000-4900= $2100 is deductible