A common question among individuals who carry investments is, “What expenses relating to my investment activities can I deduct?” You can deduct on Schedule A of your Form 1040 certain expenses that are neither trade nor business expenses, but that are paid or incurred for the production of income that will be includible in your gross income if and when realized. These “production-of-income expenses” are treated as miscellaneous itemized deductions, and are deductible to the extent that the total of these expenses, plus your unreimbursed employee business expenses, exceed 2 percent of your adjusted gross income.
For an investor, deductible expenses may include items such as (1) investment fees; (2) custodial fees; (3) trust administration fees; (4) cost of clerical help; (5) office rent in caring for investments; (6) depreciation on a home computer you use to manage investments; (7) service charges you pay as a subscriber in a dividend reinvestment plan; and (8) other expenses paid for managing investments that produce taxable income.
Deductible expenses also include rent on a safe deposit box used to store taxable income-producing stocks, bonds, or investment-related papers and documents – but not on a box that you use only for jewelry, other personal items, or tax-exempt securities.
You can also deduct fees you pay to a broker, bank, trustee, or similar agent to collect taxable bond interest or dividends on shares of stock. However, you cannot deduct fees you pay to brokers to buy investment property, such as stocks or bonds. Rather, you must add the fee to the cost (basis) of the property. Further, you cannot deduct the fees you pay to a broker to sell securities – you use those fees only to figure the amount of your gain or loss from the sale.
You cannot deduct as ordinary and necessary expenses for the production of income amounts paid or incurred that are allocable to a convention, seminar, or similar meeting. Thus, for example, if you are a day trader who is not in the trade or business of being a day trader, you cannot deduct the expenses of attending a seminar on day trading. If you are in the trade or business of day trading, you may, in some cases, deduct the expenses of attending a seminar on day trading as business expenses (rather than as production-of-income expenses).
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 03/28/2021 320-226)