Deducting Investment Expenses

In a previous post, I talked about deductions that are subject to the 2% floor.  As you may remember, these expenses, when taken in total, are greater than 2% of your adjusted gross income.  You can only deduct the amount that is above this 2% floor.  For example, if you had an adjusted gross income of $100,000 and expenses of $2,500, you would be able to deduct $500 of these expenses ($2,500-$2,000, which is 2% of $100,000).

Included in these types of expenses are those costs that relate to your investment expenses.  These would be expenses that are for the management of your investment portfolio on your taxable investments.  Let’s take a look at a few of the items that you can deduct.

You many have an investment manager who oversees your portfolio.  If you they charge you fees that relate to taxable income, these fees are deductible.  If they charge you to collect interest and dividends, contacting those companies that owe you the interest and dividends on taxable investments and collect the money owed to you, you can deduct these expenses.  Additionally, if they charge you to set up and administer an IRA, those fees are deductible.

If you have an accountant who keeps track of your investments and does the record keeping, you can deduct their fees for the record keeping.  Be sure that your accountant lists these fees separately from the fees for your tax return and other services performed.  Likewise, if you pay someone to keep records of your taxable investment income besides your accountant, you can deduct their fees.  Additionally, if you have a lawyer who gives you legal advice, be sure they break out the charges for legal advice related to investments, as you can deduct these fees related to taxable investment income.

As you become more active in your investments, and start attending shareholding meetings, and may become involved in proxy fights.  As long as these proxy fights are about legitimate corporate policies, you can deduct the expenses related to these contests.

At the end of January, you should receive form 1099-DIV.  On this form, box 5 will list investment expenses.  These expenses are deductible as investment expenses, as you might expect.

If a minor has a guardian, and that guardian manages or oversees the minor investment portfolio, any fees that this guardian charges for collecting or producing income are deductible.

If you have a safety deposit box that is only used to house securities and investments, you can deduct the safety deposit box fees.  If you hold other items in this box, you cannot deduct these fees.

If you lose the paper copy of the indemnity bonds that you hold, you can deduct the premiums for indemnity bonds for the missing securities.

Lastly, if you subscribe to investment services, you can deduct the cost of these subscriptions.

There are a few items that you cannot deduct.  These would include costs related to the following:

  • If you attend investment conventions or seminars, you cannot deduct the costs of attendance.
  • If any of the aforementioned expenses are for tax-exempt investments, you cannot deduct these costs.  If an expense is related to taxable and nontaxable items, be sure to allocate the expense between the two.
  • The cost of traveling to shareholder meetings is not deductible.

What experiences have you had with reporting the expenses related to your investments on your tax return?  I’d love to hear about it.  Also, if you have any questions, shoot them to me at chrispedencpa@yahoo.com, and I would be happy to answer them.  If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.

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