Checklist of Deductions for Investors

Click on our Advertisement

Expenses You Can Deduct

• Legal fees: If you sought legal advice regarding your investments, you can deduct those fees. If the legal services you received covered more than just your investments, include only the portion of the fees that can be allocated to your investments.
  
• Professional fees: These are similar to legal fees. For example, you can deduct fees you paid to your accountant to provide you with advice about the tax effects of certain investment transactions.
  
• Fees for investment advice: You can deduct payments to a broker or an investment manager to manage your stocks and other investments.
  
• Books and magazines regarding investments.
  
• Safe deposit box fees, to the extent that you store your securities or other investment paperwork in the box.
  
• Fees you pay directly to your IRA or Keogh custodian. If the fees are subtracted from your IRA or Keogh account, they’re not deductible.
  
• Traveling costs related to your investments, such as trips to your broker’s or investment advisor’s office and trips to look after investment property. The costs must be reasonable, and you must be prepared to prove the reasons for your travel in case of an inquiry by the IRS.
  
• One-half of the cost of your meals or entertaining costs in connection with your investments (like if you took your investment advisor to lunch to discuss investments).
  
• Premiums you pay on insurance you take out to protect your investments.
  
• Payments to clerical or office workers who help you manage your investment activities.
  
• Rent you pay for an office you use to manage your investments.
  
• Home computer costs if you use the computer to manage your investment activities. You generally must depreciate the computer using the straight-line method.
  
• Cost of software you use to manage your investments. In certain circumstances you may need to depreciate the software.
  
• Fees you pay to a broker, bank, trustee or agent to collect taxable bond interest or dividends. This doesn’t include brokers’ commissions on the purchase or sale of securities.
  
• Investment expenses from a mutual fund that isn’t offered to the public. Funds offered to the public don’t pass investment expenses on to their investors.
  
• Service charges you pay as part of a dividend reinvestment plan.

Where Do I Take These Deductions?

You deduct these expenses as miscellaneous expenses on Schedule A, line 22.

Altogether, these miscellaneous expenses (on Schedule A lines 20 through 22) must add up to more than 2% of your Adjusted Gross Income (AGI) before you can take the deduction. And even then you only get to deduct the amount above the 2% limit. That means you must have spent quite a bit, on various deductible expenses, before you can qualify for the deduction. But you should still keep track of your investment expenses, because they can add up quickly, and they may help reduce your taxable income.

Caution: When your investment portfolio includes both taxable and tax-exempt securities, you can deduct only those expenses that are related to the taxable securities.

Of course, you may not know exactly how much of these expenses relate directly to your taxable securities. If you don't know the exact amount, you may need to calculate that amount, you may calculate it by following the steps below:

1. Figure out your total investment expenses.

2. Determine the amount of income you have from taxable investments, as distinct from income coming from the tax-exempt investments.

3. Divide the income from taxable investments by the total income from your investment portfolio, to find the percentage of incoming coming from taxable securities.

4. Multiply the total investment expenses by that percentage (in decimal form) to calculate the portion of those expenses that relate to your taxable securities.

The result is your deduction.

Expenses You Cannot Deduct

• Broker’s commissions that you pay for buying and selling securities. These affect your tax cost and the ultimate gain or loss on their eventual sale.
  
• Fees charged by your bank for check writing.
  
• Seminars on investments and investing strategies.
  
• Expenses of attending a stockholders’ meeting, even if you own stock in the company and the meeting would be useful toward making further investments.
  
• Any expenses you incur toward generating investment income that’s exempt from taxes (such as municipal bonds).