Can I take a tax deduction for investment expenses on my tax
return?
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| 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.
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| The following
investment expenses may be tax deductible: |
 | 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; |
| 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. |
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| 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. |
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Related
tax information about tax deductible investment expenses |
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Itemized Tax Deductions
Miscellaneous
Itemized Tax Deductions |
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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. |
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Ask Julian Block your IRS and tax questions! |
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If you can't find the answer to your IRS or tax question in our
web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax
Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine. To
call Julian for a tax consultation click
here. |
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