Xavier School of Business, Research Paper Example

According to the William Perez (2012), some expenses, like the cost of at-home nursing for a disabled dependent, would be deductible as medical expenses, and costs greater than 7.5% of the adjusted gross income are deductible, and tax-payers whose income is high, may lose some of their deductions above the 7.5% mark. According to The IRC Sec. 213(a) as stated by the Medical Expense Deduction in the article by Laura Saunders “There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the tax payer, his spouse, or a dependent to the extent that such expenses exceed the 7.5 percent of the adjusted gross income” (Saunders, 2009).

Section 213 (d) of the Relevant Tax Law in Laura Saunders (2009) defines medical care as the amounts paid for, any out of pocket cost for finding, correcting, treating, transportation, and any other accommodations one may pay for in direct connection the treatment of the medical care that is needed (Saunders, 2009)

Mr. Smith has an AGI of $60,000 which would be allowed to deduct expenses that were greater than $4500. The fixed amount of $4500 is incurred here as the 7.5 % of $60,000 is $4500. If the replaceable pool costs $20,000 with the increase in property value of $8000 with the exclusion of the previous maintenance cost of $500.00 plus other medical expenses of $1600 then the calculation is summed up here as:

AGI= $60,000 x 7.5/100 =$4500.00

Medical expenses greater than $4500.00 for building the pool are:

Medical Expenditure related to the pool replacement = $20,000-$8000= $12,000.

So, the total amount tax-deductible is= $12000- $4500 = $7500.

Since, the amount of the medical expenses which is $7500 exceeded 7.5 % of the $60,000 or $4500 and thus the amount is $7500 exceeding the 7.5 % threshold, Mr. Smith’s tax bracket is 27.5% or higher, he would be better off claiming the expenses as a medical deduction.

However, in Mr. Smith’s situation, claiming the medical expense as a deduction would not be advisable, as he had other medical expenses on the top of the medical expenditure of replacing the pool, which are also summed up in the total claimable medical expenses. The qualifying medical costs include the amount of $1600, which is subject to the 7.5 % threshold only, and the increase in the home’s value is deemed to zero. Mr. Smith’s qualifying medical expense that he can claim lies in the calculation as mentioned below.

Qualifying medical expenses ($7500+$1600) = $9100

So, the medical expense claimable is the amount of $9100, which confers as the capital improvement in the replacement of the pool, directly related to the prescribed medical care that Mr. Smith would required at the comfort of his own home as mentioned in the article by Dr. R Zameerudin (2007), at the University of Wisconsin, Parkside.

References

Perez, W. (2012). Medical Expenses:  Tax Planning tips for reducing taxes using medical expenses. Retrieved from: http://taxes.about.com/od/deductionscredits/qt/Medical-Expenses.htm

Saunders, L. (2009). How Health Costs can Lower Tax Bills. The Wall Street Journal. Retrieved from: http://online.wsj.com/article/SB10001424052748703300504574567781847701974.html

Zameerudin, R. (2007). School of Business and Technology: University of Wisconsin, Parkside. Retrieved from: http://www.docstoc.com/docs/68403505/PRACTICE-FINAL-EXAM-ACCT-305-Fall-07