Zack and Zoe Smith (both are age 66) are married and together have AGI of $105,000 in 2018. They have two dependents and file a joint return. During the year, they paid $8,000 for medical insurance, $15,000 in doctor bills and hospital expenses, and $1,000 for prescribed medicine and drugs.

(A) In December 2018, the Smiths received an insurance reimbursement of $3,500 for hospitalization expenses. Determine the deduction allowable for medical expenses paid during the year.

(B) Assume instead that the Smiths received the $3,500 insurance reimbursement in February 2019. Determine the deduction allowable for medical expenses incurred in 2018.

(C) Assume that the Smiths received the $3,500 insurance reimbursement in February 2019. Discuss whether the reimbursement will be included in their gross income for 2019.

Subject: Taxiation