If a taxpayer has AGI of $35,000, how much of the following expense can he apply towards his itemized deductions?
Medical Expenses $3,500
Tax Preparation Fees $500
Unreimbursed Employee Expenses $2,000
Charitable Contributions $1,000
For example, what is the limitation on medical expenses? What is the limitation on tax prep fees and unreimbursed employee expenses? Is there a limitation on charitable contributions?
I need help with the above problem before 12AM tonight. Thank you .
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I don't have an answer for you. I no longer live in the US. I might suggest googling the terms limitation on medical expenses and income tax.
I hope that helps. Wish I could help more.
Start with Schedule A, which you will find (for 2009) at
http://www.irs.gov/pub/irs-pdf/f1040sa.pdf
The "Form 1040 line 38" often referred to in Schedule A is the Adjusted gross income (AGI).
You should find most of your answers there.
Even though various of these expenses, taxes and contributions may be deductible after going through the numbers, it is often found that a larger deduction will apply is the standard deduction is taken. This has the effect of making the itemized deductions irrelevant (essentially, zero) for many, if not most, people.
To determine the limitations on each of these expenses for itemized deductions, we need to consider the applicable rules and guidelines set by the Internal Revenue Service (IRS).
1. Medical Expenses:
For medical expenses, there is a limitation based on the taxpayer's adjusted gross income (AGI). Currently, medical expenses can be deducted to the extent that they exceed 7.5% of the taxpayer's AGI. In this case, the taxpayer has an AGI of $35,000.
To calculate the limitation, we multiply the AGI by 7.5%: $35,000 * 0.075 = $2,625.
Therefore, the limitations on medical expenses for itemized deductions in this case would be $2,625.
2. Tax Preparation Fees and Unreimbursed Employee Expenses:
Tax preparation fees and unreimbursed employee expenses fall under a category called "Miscellaneous Itemized Deductions." Starting from tax year 2018, the miscellaneous itemized deductions are no longer deductible.
Therefore, the taxpayer cannot apply any amount of the tax preparation fees and unreimbursed employee expenses towards his itemized deductions.
3. Charitable Contributions:
Unlike medical expenses and miscellaneous itemized deductions, charitable contributions do not have a specific AGI limitation. However, there might be other limitations depending on the type of contribution and the specific organization it is made to. Generally, charitable contributions can be fully deducted if they are made to qualifying organizations, such as registered charities.
In this case, the taxpayer can apply the full $1,000 of charitable contributions towards his itemized deductions.
To summarize:
- The limitation on medical expenses is $2,625 (7.5% of AGI).
- Tax preparation fees and unreimbursed employee expenses are not deductible.
- Charitable contributions do not have an AGI limitation but could have other specific limitations based on the type of contribution and the qualifying organization.