Taxpayer Project: Part 3

Chapter 6 provided an overview of individual deductions. We learned about various deductions for and from AGI. In Part 3 of the Taxpayer Project, you will add to your taxpayer story by providing information about potential deductions.

Requirements for Part 3:

Complete the following questions to add to your taxpayer information.

It is recommended that you type your answers, so that you may later Copy-Paste as you organize the final project.

Provide information for potential deductions under each of the four broad categories of itemized deductions: Medical, Taxes, Interest, and Charitable Contributions. Under each of these four categories, you must have at least two items that qualify and one item that does not qualify. Provide sufficient information to make this determination.

Provide at least one piece of information for the “Other” category of itemized deductions. It can either end up being included or excluded.

At this point, you do not need to add any information about any deductions for AGI in the two categories of directly or indirectly related to business. In Part 4 we will add business expenses, the self-employed payroll tax deduction for AGI, and the qualified business income deduction from AGI.

You may choose to add information about a deduction for AGI in the last category of “subsidizing specific activities” (i.e. alimony paid or the student loan interest deduction). This is not a requirement, but can be added as a way to increase complexity/difficulty.

Remember to consider adding nuanced, misleading, or additional information to add difficulty/complexity to your taxpayer’s story.

Taxpayer Project: Part 3

1. What are your taxpayer’s 3 (or more) medical expenses?

2. For each of the 3 (or more) medical expenses, do they qualify as itemized deductions? Explain your reasoning.

3. What is the total amount to be included as itemized deductions for the medical category, before considering the floor?

4. What is the medical floor? Why are you unable to determine the floor at this point in the project?

5. What are your taxpayer’s 3 (or more) taxes paid?

6. For each of the 3 (or more) taxes paid, do they qualify as itemized deductions? Explain your reasoning.

7. What is the total amount to be included as itemized deductions for the taxes category, after considering any limitations?

8. What are your taxpayer’s 3 (or more) interest expenses?

9. For each of the 3 (or more) interest expenses, do they qualify as itemized deductions? Explain your reasoning.

10. What is the total amount to be included as itemized deductions for the interest category, after considering any limitations?

11. What are your taxpayer’s 3 (or more) charitable contributions?

12. For each of the 3 (or more) charitable contributions, do they qualify as itemized deductions? Explain your reasoning.

13. What is the total amount to be included as itemized deductions for the charitable contribution category, before considering the ceilings?

14. What are the charitable contribution ceilings? Why are you unable to determine the ceilings at this point in the project?

15. What is your taxpayer’s 1 (or more) “other” expense?

16. For this other expense, does it qualify as an itemized deduction? Explain your reasoning.

17. If you choose, you may provide information for a potential for AGI deduction here. (Optional)

Examples for Part 3 of the Taxpayer Project: Sally and Jim (MFJ)

(Note: These examples do not meet all requirements.)

Sally and Jim contributed $40,000 of cash to the San Diego Zoo, a public charity. As a thank you for donating, the Zoo sent Sally and Jim free zoo tickets and other merchandise, with a total fair market value of $6,000.

Sally and Jim paid $19,000 for hospital bills for Sally’s elective cosmetic surgery.

Sally’s employer withheld $31,400 of Federal Income Taxes and $14,200 of State Income Taxes. In addition, they have made estimated tax payments of $22,000 for Federal Income Taxes and $12,000 for State Income Taxes.

Sally paid $600 interest on her car loan. She uses this car for commuting.

During the year, Jim had to have his appendix removed. The total hospital bill was $55,000. The insurance company only reimbursed them for $18,000. Sally and Jim do not expect to receive any more from the insurance company.

Sally and Jim paid $19,500 of home mortgage interest on their home ($400,000 mortgage). They also paid $17,000 of property taxes on their home.