How To Deduct Investment Expenses

Smart investors know how to deduct investment expenses. The Internal Revenue Service allows taxpayers to deduct certain investment expenses incurred on taxable investments. These expenses fall into three categories: investment related miscellaneous itemized deductions, investment interest expense and capital losses.

  1. The taxpayer should determine eligible investment expenses. Eligible expenses include: fees for investment counseling, legal costs related to investment activities, accounting fees to keep track of taxable investments, cost of software or online services used to manage  investments, and safe deposit box rental fees. The expenses listed above are not the only eligible expenses. Please see IRS Publication 550 for additional investment related expenses that can be used as deductions.
  2. Determine the total amount of eligible investment expenses. Add up all the investment expenses that apply to the taxpayer, spouse, and dependents.
  3. Enter the total amount of eligible investment related expenses on the Schedule A form. The total amount of investment expenses is entered on line 23 under the section titled Job Expenses and Certain Miscellaneous Deductions.

Tips

The items entered under the  total miscellaneous itemized deductions section have to be higher than two percent of the taxpayer's adjusted gross income in order to effect the return.

Investment interest expense is tax deductible up to the amount of net investment income. Leftover investment interest expense can be carried over for use in future years, so it is very important to review previous years tax returns to see if there is anything left that can be used for the current year.

Resources:

IRS

 

 

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