Question

Bill would like some tax benefits for his investment expenses incurred this year. His AGI is $190,000. Currently, his expenses consist of: (1) $1,000 investment advice fees, (2) $1,500 unreimbursed employee business expenses (a miscellaneous itemized deduction), and (3) $600 tax return preparation fees. How much more, if any, must Bill spend for investment expenses this year before he receives any tax benefit?

A) Zero, Bill is already receiving a benefit.
B) More than $500.
C) More than $700.
D) More than $900.
E) None of the choices are correct.

Answer 1

Bill would need to spend more than $2,100 on additional investment expenses before he receives any tax benefits.

Step-by-step explanation:

Bill would need to spend more than $2,100 on additional investment expenses before he receives any tax benefits.

Currently, his expenses consist of:

1. $1,000 investment advice fees
2. $1,500 unreimbursed employee business expenses
3. $600 tax return preparation fees

According to the tax code, miscellaneous itemized deductions, such as investment advice fees and tax return preparation fees, are subject to a 2% AGI floor. This means that only the portion of the expenses that exceeds 2% of Bill's AGI ($190,000 x 0.02 = $3,800) will be tax-deductible. Therefore, Bill can only receive a tax benefit if his investment expenses exceed $3,800. Since his current expenses total $3,100, he would need to spend more than $2,100 to reach that threshold.