Question

Frank and Sally, aged 46, are married and together have AGI of $74,000 in 2016. They have four dependents and file a joint return. They pay $4,100 for a high deductible health insurance policy and contribute $3,600 to a qualified Health Savings Account. During the year, they paid the following amounts for medical care: $8,200 in doctor and dentist bills and hospital expenses, and $2,000 for nonprescription medicine and drugs. In November 2016, they received an insurance reimbursement of $4,300 for the hospitalization. Frank spent $600 on liposuction. They expect to receive an additional reimbursement of $1,300 in January 2017. Determine the maximum deduction allowable for medical expenses in 2016. a. $2,800. b. $800. c. $5,200. d. $4,200. e. None of the above.

Please Explain the answer

Answer 1

As per IRS, you can only take deduction of medical expenses excedding 10% of Adjusted Gross Income of the taxpayer.

AGI = $74,000

Medical Expenses allowed excedding $7,400

Moreover, Premium paid for health insurance is deductible but qualified Health Savings Account contribution is deducted separately. Moreover, during the year you can take deduction of only those mediccal expenses which are not reimbursed under the scheme. Non prescribed insulin is deductible but other drugs & medicines are not deductible. Liposuction surgery is not deductible as it is treated as cosmetic.

Therefore, deductible medical expenses include

Health Insurance	4,100
Medical Care	8,200
Less: Reimbursed	4,300
Less: 10% of AGI	7,400
Deduction of Medical Expense	600

Correct Answer is None