Question

Marsha is filing her federal income tax return with the Single filing status. She had an adjusted gross income of $56,800 last year and is trying to decide whether to take the standard deduction of $5700 or to itemize deductions. Last year she had $4900 in medical expenses, $3100 in state and local income taxes paid, $1940 in mortgage interest paid, $530 in charitable contributions, and $1200 in non-reimbursed work expenses. Part 1: if medical expenses are deductible to the extent that they exceed 7.5% of a taxpayers AGI how much will Marsha be able to deduct for medical expenses if she itemizes deductions?

Part 2: If Marsha itemizes deductions, how much will she be able to deduct for state and local income taxes paid? How about for mortgage interest paid?

Part 3: If charitable contributions are deductible up to 50% of a taxpayers AGI how much will Marsha be able to deduct for charitable contributions if she itemizes deductions?

Part 4: If non-reimbursed work expenses are deductible to the extent that they exceed 2% of a taxpayer's AGI, how much will Marsha be able to deduct for non-reimbursed work expenses if she itemizes deductions?

Part 5: What is the sum of Marsha's itemized deductions? Should Marsh itemize deductions or use the standard deduction?

Answer 1

Hope this helps ;)

Explanation:

Part 1:

Medical expenses are deductible to the extent that they exceed 7.5% of a taxpayer's AGI. Marsha's AGI is $56,800, so she can deduct medical expenses that exceed $56,800 * 0.075 = $4260.

Marsha had $4900 in medical expenses, so she can deduct $4900 - $4260 = $640 for medical expenses if she itemizes deductions.

Part 2:

Marsha can deduct the full amount of state and local income taxes paid if she itemizes deductions. Marsha paid $3100 in state and local income taxes, so she can deduct $3100 for state and local income taxes if she itemizes deductions.

Marsha can also deduct the full amount of mortgage interest paid if she itemizes deductions. Marsha paid $1940 in mortgage interest, so she can deduct $1940 for mortgage interest if she itemizes deductions.

Part 3:

Charitable contributions are deductible up to 50% of a taxpayer's AGI. Marsha's AGI is $56,800, so she can deduct charitable contributions up to $56,800 * 0.5 = $28400.

Marsha made $530 in charitable contributions, so she can deduct the full amount of $530 for charitable contributions if she itemizes deductions.

Part 4:

Non-reimbursed work expenses are deductible to the extent that they exceed 2% of a taxpayer's AGI. Marsha's AGI is $56,800, so she can deduct non-reimbursed work expenses that exceed $56,800 * 0.02 = $1136.

Marsha had $1200 in non-reimbursed work expenses, so she can deduct $1200 - $1136 = $64 for non-reimbursed work expenses if she itemizes deductions.

Part 5:

The sum of Marsha's itemized deductions is $640 + $3100 + $1940 + $530 + $64 = $6574.

If Marsha itemizes deductions, she can deduct $6574. If she takes the standard deduction, she can deduct $5700.

Since $6574 is greater than $5700, Marsha should itemize deductions to get a larger deduction.