Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

- Schedule of standard deductions STANDARD DEDUCTION Filing Status Married individuals filing joint returns and surviving spouses $ 24,800 Heads of households $ 18,650 $

image text in transcribedimage text in transcribed

image text in transcribed

- Schedule of standard deductions STANDARD DEDUCTION Filing Status Married individuals filing joint returns and surviving spouses $ 24,800 Heads of households $ 18,650 $ 12,400 12,400 $ $1,300* Unmarried individuals (other than surviving spouses and heads of households) Married individuals filing separate returns Additional standard deduction for the aged and the blind; Individual who is married and surviving spouses Additional standard deduction for the aged and the blind; Individual who is unmarried and not a surviving spouse Taxpayer claimed as dependent on another taxpayer's return: Greater of (1) earned income plus $350 or (2) $1,100. These amounts are $2,600 and $3,300, respectively, for a taxpayer who is both aged and blind. $1,650* In 2020, Abby sustains serious injuries from a snow-skiing accident. (Click the icon to view the 2020 tax data.) (Click the icon to view the 2020 itemized deductions.) In 2021, Abby receives an additional $8,000 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,400 of the settlement is to pay Abby's medical bills, and $3,600 is to reimburse her legal expenses. (Click the icon to view the standard deduction schedule.) (Click the icon to view the 2020 taxable income.) Requirement What is the proper tax treatment of this $8,000 settlement? Begin by determining the excess medical expenses and the total itemized deductions with the settlement. Medical expenses Less Deductible medical expenses Total itemized deductions Now calculate the tax benefit of this $8,000 settlement. Minus: Deductions from AGI: Taxable income (assuming reimbursement was received in 2020) Minus: Tax benefit What is the proper tax treatment of this $8,000 settlement? Abby must include legal fees in her gross income in 2021 because of the reimbursement. The reimbursement for the income to Abby because - X More info by receives an additional $8,000 in a settlement of a lawsuit arising because of the accident. $4,400 of the settlement is to pay Abby's medical bills, and $3,600 is to er legal expenses. he icon to view the standard deduction schedule.) $ 11,800 Doctor bills Hospital bills ht proper tax treatment of this $8,000 settlement? 9,300 600 More info $ 21,700 (9,500) (4,650) $ 62,000 Medical and dental insurance Medical expenses Less Reimbursement 7.5% percent of AGI Deductible medical expenses Mortgage interest Total itemized deductions Adjusted gross income (AGI) Minus: Deductions from AGI: 7,550 6,550 Itemized deductions (14,100) $ Taxable income 14,100 47,900 Print Done Print Done In 2020, Abby incurred the following expenses: s from AGI: Item Amount Doctor bills $ 11,800 suming reimburse 9,300 Hospital bills Legal fees in suit against ski resort 2,800 cax treatment of th Abby is single and has no dependents. For the year, her salary is $62,000. She pays $600 in medical and dental insurance premiums, which is withheld from her paycheck on an after-tax basis, $6,550 in mortgage interest on her home, and $1,100 in interest on her car loan. Her health insurance provider reimburses her for $9,500 of the medical expenses. income to A O Print Done - Schedule of standard deductions STANDARD DEDUCTION Filing Status Married individuals filing joint returns and surviving spouses $ 24,800 Heads of households $ 18,650 $ 12,400 12,400 $ $1,300* Unmarried individuals (other than surviving spouses and heads of households) Married individuals filing separate returns Additional standard deduction for the aged and the blind; Individual who is married and surviving spouses Additional standard deduction for the aged and the blind; Individual who is unmarried and not a surviving spouse Taxpayer claimed as dependent on another taxpayer's return: Greater of (1) earned income plus $350 or (2) $1,100. These amounts are $2,600 and $3,300, respectively, for a taxpayer who is both aged and blind. $1,650* In 2020, Abby sustains serious injuries from a snow-skiing accident. (Click the icon to view the 2020 tax data.) (Click the icon to view the 2020 itemized deductions.) In 2021, Abby receives an additional $8,000 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,400 of the settlement is to pay Abby's medical bills, and $3,600 is to reimburse her legal expenses. (Click the icon to view the standard deduction schedule.) (Click the icon to view the 2020 taxable income.) Requirement What is the proper tax treatment of this $8,000 settlement? Begin by determining the excess medical expenses and the total itemized deductions with the settlement. Medical expenses Less Deductible medical expenses Total itemized deductions Now calculate the tax benefit of this $8,000 settlement. Minus: Deductions from AGI: Taxable income (assuming reimbursement was received in 2020) Minus: Tax benefit What is the proper tax treatment of this $8,000 settlement? Abby must include legal fees in her gross income in 2021 because of the reimbursement. The reimbursement for the income to Abby because - X More info by receives an additional $8,000 in a settlement of a lawsuit arising because of the accident. $4,400 of the settlement is to pay Abby's medical bills, and $3,600 is to er legal expenses. he icon to view the standard deduction schedule.) $ 11,800 Doctor bills Hospital bills ht proper tax treatment of this $8,000 settlement? 9,300 600 More info $ 21,700 (9,500) (4,650) $ 62,000 Medical and dental insurance Medical expenses Less Reimbursement 7.5% percent of AGI Deductible medical expenses Mortgage interest Total itemized deductions Adjusted gross income (AGI) Minus: Deductions from AGI: 7,550 6,550 Itemized deductions (14,100) $ Taxable income 14,100 47,900 Print Done Print Done In 2020, Abby incurred the following expenses: s from AGI: Item Amount Doctor bills $ 11,800 suming reimburse 9,300 Hospital bills Legal fees in suit against ski resort 2,800 cax treatment of th Abby is single and has no dependents. For the year, her salary is $62,000. She pays $600 in medical and dental insurance premiums, which is withheld from her paycheck on an after-tax basis, $6,550 in mortgage interest on her home, and $1,100 in interest on her car loan. Her health insurance provider reimburses her for $9,500 of the medical expenses. income to A O Print Done

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting International Financial Reporting Standards Global Edition

Authors: Charles T. Horngren, C. William Thomas, Wendy M. Tietz, Themin Suwardy, Walter T. Harrison

11th Edition

9781292211145

More Books

Students also viewed these Accounting questions

Question

Why must in-service training or on-the-job education be continuing?

Answered: 1 week ago