Can I take a tax deduction for investment expenses on my tax return?

The proper classification is important to determine how investment income and investment expenses are to be reported on your tax return. Investors trade solely for their own account and do not carry on a trade or business. Their securities sales result in capital gain or capital loss and their tax deductible investment expenses are itemized tax deductions on their tax return. Dealers sell securities to customers in the ordinary course of trade or business. Their sales result in ordinary gain or ordinary loss and their tax deductible investment expenses are trade or business expenses. Traders buy and sell securities frequently but have no customers. Their purchases and sales result in capital gain and capital loss, and their tax deductible investment expenses are trade or business expenses.

The following investment expenses are tax deductible as miscellaneous itemized tax deductions on Form 1040, Schedule A by investors. The are subject to the 2% AGI floor.

Tax Deductible Investment Expenses

	Accounting fees for record keeping;
	Expenses of proxy fights when legitimate corporate policies are involved;
	Fees for collecting taxable interest and dividends;
	Fees shown in Box 5 of Form 1099-DIV;

	Guardian fees of a minor incurred in collecting or producing income;
	Investment manager and planner fees to the extent that they relate to taxable income;
	IRA setup and administration fees;
	Legal fees, see Legal Fees;
	Premiums for indemnity bonds for replacing missing securities;

	Safe deposit box fees used exclusively to hold taxable income generating securities and investments;
	Salaries of persons hired to keep records of your taxable investment income; and
	Subscriptions to investment services.

Even if you engage in extensive securities activities, you are an investor, not a dealer or trader, if you do not seek profit primarily in swings in daily market movements, and do not personally engage in or direct the purchases or sales. An investor trades for profit motivated reasons such as long term appreciation, dividends and interest. Whether the activities of an individual constitute trade or business or investment is determined from the facts in each case. These distinctions have been established through tax court cases.

Related tax information about tax deductible investment expenses

Tax Directory Topics:
Itemized Tax Deductions
Miscellaneous Itemized Tax Deductions

IRS publications about tax deductible investment expenses:
For more information refer to IRS Publication 550,

Investment Income and Expenses. Also see IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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