Question

1. Nick’s dependent child lives with him. He pays the following expenses for her during 2019: (1) doctor bills. ($8,000); (2) hospital bill ($10,775) which included the doctor’s fee ($10,000), meals ($200), lodging ($400) and lab fees ($175); (3) prescription drugs ($600) and insulin ($925); (4) eyeglasses ($200); (5) aspirin and vitamins ($50); (6) medical insurance premiums ($1,000); (7) transportation to and from the doctor’s office by car (300 total miles); and (8) a face lift ($2,000). Nick’s adjusted gross income in 2019 was $200,000. Nick’s health insurance plan reimbursed him for $4,000 of the hospital bill and $300 of the prescription drugs. What is Nick’s net medical expense deduction in 2019?

2. John is single. He has the following tax information: wages $100,000, vitamins insurance premiums paid $8,000, state income tax $9,000, state sales tax $7,000, mortgage interest $16,000, credit card interest $3,000, $900, unreimbursed travel by car for the Red Cross (100 miles) and reimbursed expenses from his employer $4,100. Determine John’s net itemized deduction total.

3. John purchased a home four years ago for $1,150,000. He paid $200,000 cash and incurred a $950,000 mortgage. On 5/10 of the current year, John took out a mortgage on the home for $125,000 when the fair market value of the home was $2,000,000. He used the proceeds of the loan to pay off credit card bills, medical bills, tuition expenses for his child and purchase a boat.

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Determine the amount of John’s mortgage indebtedness that qualifies for an interest expense deduction in the current year.

4. Erin lives with her brother and supports him. She had wages of $100,000.

Erin paid the following medical expenses for her brother: insulin $2000, prescription drugs $4,000, doctor’s bills $8,000, hospital bills $18,000, aspirin $16, eyeglasses $200. Erin’s medical insurance reimbursed her $9,300 for the hospital bills and $700 for the prescription drugs.

During the year Erin paid $14,000 interest on her mortgage, $4,700 in real property taxes and state income tax of $3,300.

Erin contributed $5,200 to her church, $800 to St. John’s University and gave $300 to a needy family.

Erin had $2,300 of reimbursed expenses from her employer.

Determine Erin’s filing status, taxable income and tax liability.

Answer 1

Answer to Question 1 :

Medical expenses :

Medical expenses are the expenses incurred for diagnosis, cure, treatment or prevention of diseases. It also includes the expenses paid to physicians, surgeons, and other medical practitioners. It also includes the costs of equipment and supplies needed for the treatment.

Expense of dependents and Spouse :

Medical expenses paid for spouse can be included if they are married during the time of the medical treatment. Likewise, the medical expense of dependents can be included if they are dependents at the time of the medical treatment or payment of such expenses.

Medical expenses that cannot be included in the deduction :

1) Expenses for illegal drugs, illegal operations or treatments.

2) Expenses for hair transplant, cosmetic surgery unless if such expense is necessary to improve a deformity.

3) Expenses that are reimbursed by your flexible spending arrangement or by the insurance company.

4) Medicines that are not prescribed by the doctors I.e. prescription by a doctor is a prerequisite to claim such expenses. (exception: insulin). Medicines bought from other countries are also not included.

5) Expenses for: Swimming class, dancing class, Health club, Nursing home facilities, teeth whitening, weight loss program, personal use items (eg: toothbrush), nutritional supplements, maternity expenses, and normal childcare expenses.