Question

Charlie incurred $1,500 in unreimbursed employee business expenses, $400 in tax return preparation fees, $300 in deductible investment expenses, and $700 in investment losses. Charlie's AGI is $40,000. What is the deductible amount of Charlie's miscellaneous itemized deductions?

a. $2,100
b. $2,900
c. $1,400
d. $2,200

Answer 1

Charlie can deduct $1,400 in miscellaneous itemized deductions after accounting for the 2% AGI threshold, excluding the investment losses which are not miscellaneous deductions.

Step-by-step explanation:

Charlie incurred $1,500 in unreimbursed employee business expenses, $400 in tax return preparation fees, and $300 in deductible investment expenses. As miscellaneous itemized deductions are subject to a threshold of 2% of AGI, we need to calculate 2% of Charlie's $40,000 AGI, which is $800. Therefore, we subtract this threshold from the total of Charlie's miscellaneous expenses. The investment losses of $700 are not considered miscellaneous itemized deductions, but capital losses, and have a different treatment in tax calculations. The sum of the miscellaneous expenses is $1,500 + $400 + $300 = $2,200, from which we subtract the $800 threshold, leaving us with $1,400 in deductible miscellaneous itemized deductions.