MONEY MANAGEMENTFrom the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®
DEDUCTIBLE INVESTMENT RELATED EXPENSES
March 1, 2006) — Do you invest in stocks, bonds or mutual funds? If
you do, you may be able to deduct certain expenses related to your investments.
deductible, the expenses must be ordinary and necessary and related to the production of taxable income, or for the management of property held for the production of income, reports the Virginia Society of CPAs.
Investment expenses are deductible as miscellaneous itemized deductions on
Schedule A of your tax return. When your investment portfolio includes both
taxable and tax-exempt securities, you can deduct only those expenses that are related to the taxable securities.
The investment-related expenses — along with your other miscellaneous itemized deductions — must exceed two percent of your adjusted gross income (AGI) to be deductible. If, for example, your AGI is $50,000, you can deduct only the amount that exceeds $1,000.
Some common deductible investment expenses may include:
Legal and professional fees
If you paid for legal advice regarding your investments, the cost is deductible. The same holds true for fees paid to an accountant for tax advice about your investment activities and transactions.
You can deduct payment to a broker or an investment manager for portfolio management.
Also deductible is the cost of financial newspapers, such as the Wall Street Journal or the Financial Times, as well as financial magazines, journals and newsletters. To qualify for the deduction, the IRS says that there must be a credible relation between the information, the advice gained and the taxpayer’s investment activity.
Safe deposit box rental
These fees are deductible if the box is used exclusively to store securities and documents related to your investments.
Travel and transportation costsYou may claim a deduction for travel costs incurred to look after your investments, or to seek investment advice from an attorney, accountant, investment advisor or stockbroker.
Individual retirement account (IRA) and Keogh investment fees
These fees are deductible only if they are billed and paid separately. If the fees are subtracted from your IRA or Keogh account, they are not tax-deductible.
Fees to collect income
You can deduct fees you pay to a bank, broker, trustee or agent to collect investment income, such as your taxable bond interest or stock dividends.
Non-deductible investment-related expenses
Not all investment-related expenses are deductible. For example, you cannot deduct commissions or brokers’ fees on the purchase or sale of securities. Instead, these expenses are added to the investment’s cost basis, which reduces your taxable gain when the asset is sold. The same rule applies to mutual fund expenses.
You may not deduct travel costs associated with attending seminars, conventions or similar meetings for investment purposes, nor can you deduct the cost of attending a stockholders’ meeting, even if you own stock in the company.
Investment interest is deductible up to certain limits
When it comes to investment interest, the general rule is that you may deduct the cost of interest incurred to buy or carry investment property, up to the net amount of your investment income for the year. If you paid more interest than the investment income you received, you may carry over the disallowed portion of interest to future years, when it can be offset with investment income. To report investment interest, you must complete Form 4952.
Determining what qualifies as investment income can be complicated. If you have any questions about this or other deductible investment-related expenses, consult with a CPA.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
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