Certainly! Let's go through the details step-by-step to determine Margaret and John Murphy's medical expense deduction:
1. Adjusted Gross Income (AGI) Calculation:
The given AGI for Margaret and John Murphy is [tex]$27,507.
2. Listing Medical Expenses:
The medical expenses incurred during the year are as follows:
- Medical insurance premiums: $[/tex]1,200
- Premiums on an insurance policy that pays [tex]$100 per day for each day Margaret is hospitalized: $[/tex]400
- Hospitalization expense: [tex]$160
- Medical care lodging (two people, one night): $[/tex]2,500
- Hospital bills: [tex]$75
- Herbal supplements: $[/tex]250 (note, this is not deductible)
- Dentist bills: [tex]$360
- Prescription drugs and medicines: $[/tex]400
- Cosmetic surgery: Not listed, so we assume no cosmetic surgery expenses.
3. Summing Up the Deductible Medical Expenses:
We exclude the herbal supplements since they are not deductible.
Therefore, the total deductible medical expenses are:
[tex]\[
1,200 + 400 + 160 + 2,500 + 75 + 360 + 400 = 5,095
\][/tex]
4. Calculating the AGI Threshold:
According to IRS regulations, medical expenses are deductible only to the extent that they exceed 7.5% of AGI.
[tex]\[
\text{Threshold} = 0.075 \times \text{AGI} = 0.075 \times 27,507 = 2,063.025
\][/tex]
5. Determining Deductible Medical Expenses:
We subtract the threshold from the total medical expenses to find the amount that can be deducted:
[tex]\[
\text{Deductible Medical Expenses} = \text{Total Medical Expenses} - \text{Threshold}
\][/tex]
[tex]\[
\text{Deductible Medical Expenses} = 5,095 - 2,063.025 = 3,031.975
\][/tex]
When rounded to the nearest dollar:
[tex]\[
\text{Deductible Medical Expenses} = 3,032
\][/tex]
So, Margaret and John Murphy's medical expense deduction for the year is $3,032.
