Question

Which of the following is a true statement?

A. Unreimbursed employee business expenses are deductible as miscellaneous itemized deductions.

B. With one exception, investment expenses are deductible as itemized deductions.

C. Business deductions are one of the most common deductions for AGI but they are not readily visible on the front of Form 1040.

D. The distinction between business and investment expenses is critical for determining whether a deduction is claimed above the line (for AGI) or below the line (itemized).

E. All of these are true.

Answer 1

The correct statement is D, which highlights the importance of differentiating between business and investment expenses for tax deductions. Options A and B are incorrect, as tax law changes have affected the deductibility of these expenses. Option C is misleading since business deductions can be visible on tax forms.

Step-by-step explanation:

The correct statement is: D. The distinction between business and investment expenses is critical for determining whether a deduction is claimed above the line (for AGI) or below the line (itemized).

Business deductions are indeed commonly deducted for Adjusted Gross Income (AGI) and are important for taxpayers to reduce their taxable income. These expenses would be visible on the front page of Form 1040 or Schedule C for self-employed individuals.

Investment expenses, on the other hand, were deductible as miscellaneous itemized deductions, but under the Tax Cuts and Jobs Act of 2017, many of these deductions have been suspended from 2018 until 2025 for individual taxpayers.

Therefore, options A and B are incorrect based on tax law as of the specified knowledge cut-off date. Option C is not entirely accurate, as business deductions can be quite visible on the tax form, especially for self-employed individuals.