Which of the following is allowable in the computation of total income on Form 1040?

The correct response is based on the treatment of net capital losses in the computation of total income for Form 1040. Taxpayers can deduct net capital losses against their taxable income, and the IRS allows a limit of up to $3,000 per year to be offset against ordinary income for individual filers. This reduces the taxable income reported on Form 1040 and is an essential consideration for tax planning and calculations.

While the penalty on the early withdrawal of savings, investment interest expense, and deductible IRA contributions may be relevant for determining taxes or deductions elsewhere in the tax return, they do not directly represent allowable deductions in the computation of total income on Form 1040. The penalty on early withdrawals is typically an adjustment in calculations rather than a direct subtraction from total income, while investment interest expense is often limited to net investment income. Deductible IRA contributions, although they function to reduce taxable income, are not included in the total income computation but rather serve to lower the taxable income calculated after total income is established.

Focusing specifically on net capital losses provides a clear and impactful adjustment to total income, aligning this deduction with the IRS guidelines for individuals filing their taxes.