Question

Simon lost $5,000 gambling this year on a trip to Las Vegas. In addition, he paid $2,000 to his broker for managing his $200,000 portfolio and $1,500 to his accountant for preparing his tax return. In addition, Simon incurred $2,500 in transportation costs commuting back and forth from his home to his employer’s office, which were not reimbursed. Calculate the amount of these expenses that Simon is able to deduct (assuming he itemizes his deductions).

Answer 1

Solution:-

a. Simon’s AGI is $40,000:-

$ 2,700. Gambling losses are only deductible to the extent of gambling winnings. Thus, Simon cannot deduct any of the $5,000 gambling losses. The $2,500 commuting expenses are also nondeductible as they are deemed to be personal expenses. The $2,000 broker management fees are deductible as investment fees (miscellaneous itemized deductions subject to the 2% AGI floor), and the $1,500 tax return fees are also deductible as miscellaneous itemized deductions subject to the 2% AGI floor. Thus, Simon may deduct $2,700 of these expenses ($2,000 + $1,500 – (2% x $40,000 AGI) = $2,700)

b. Simon’s AGI is $200,000:-

$0. Gambling losses are only deductible to the extent of gambling winnings. Thus, Simon cannot deduct any of the $5,000 gambling losses. The $2,500 commuting expenses are also nondeductible as they are deemed to be personal expenses. The $2,000 broker management fees are deductible as investment fees (miscellaneous itemized deductions subject to the 2% AGI floor), and the $1,500 tax return fees are also deductible as miscellaneous itemized deductions subject to the 2% AGI floor. However, because the 2% AGI floor (2% x $200,000 AGI = $4,000) exceeds the sum of the broker management fees ($2,000) and the tax return fees ($1,500), Simon will not be able to deduct either expense.