Some investors spend so much time worrying about stock prices and the next hot IPO, they forget to keep track of all the money they spent learning about those highflying investments.
Fortunately, all these out-of-pocket costs are deductible as miscellaneous itemized expenses on
-- Itemized Deductions
. So you have a chance to recoup at least some of the money you blew trying to understand this tech-crazed market.
Granted, the total of all your investment-related deductions is reduced by 2% of your adjusted gross income. And that can be a substantial reduction. If your AGI is $100,000, 2% is $2,000. If your investment-related expenses total $3,000, you can deduct only $1,000.
But investment-related deductions are not the only expenses reported as miscellaneous itemized deductions subject to this 2% limitation. There are others, including:
- Unreimbursed employee expenses, like on-the-job meals and transportation costs that came out your own pocket.
Professional dues -- unreimbursed fees you pay to be a member of business organizations, professional groups, etc.
The home office deduction -- if your employer requires you to work at home. (See last Saturday's
Tax Forum for more details.)
Investment club fees and expenses.
If you lump any of the above in with your investment expenses, your miscellaneous itemized deductions will be that much bigger. And you'll get more money back from Uncle Sam.
So what can you deduct as an investment-related expense?
Any reasonable expenses that help you manage and understand your investments.
That includes things like:
- Subscription fees to any Web site, newspaper or newsletter that helps you invest, like
The Wall Street Journal or
Usage fees for your online trading accounts.
Investment books or tapes.
Accounting, legal and tax advisory or preparation fees.
Transportation costs to and from your broker or financial adviser.
And Don't Forget
Here are a few obscure fees that investors sometimes forget to deduct. (Hey, every little bit helps.)
If your bank charges a monthly service fee to participate in an automatic investment service plan, it's deductible.
If you have an IRA, make sure you have all associated fees billed directly to you at home. If you pay these fees out of your own pocket, you can deduct them. If, instead, the fees are charged to your IRA account, you cannot deduct them. And what's worse, taking money out of your IRA account to pay those fees means there's less money growing for your retirement.
Some expenses are incurred for both personal and investment purposes, like your telephone, cable or Internet access bills. So they require some number crunching. For instance, you can deduct the portion of your cell phone bill that relates to calls that concern your investments. If 50% of the time on your cell phone is spent yelling at your broker, then you can deduct 50% of the bill as an investment-related expense.
Be sure to keep a log to record personal and investment usage.
Don't Press Your Luck
While you can deduct transportation costs to and from your broker, you cannot deduct the costs associated with attending a shareholder meeting, unless you're a majority shareholder.
Likewise, you can't deduct the costs of attending investing seminars or conventions.
Remember: You can't deduct trading or broker commissions, but you can add them back in to the cost basis of the security.
If You're a Trader
Traders, on the other hand, can deduct the cost of seminars and conventions, but must report these costs on
-- Profit or Loss from Business
For a list of other trader expenses, see this
story from our
Taxes for Traders series.
Just make sure you don't mix up your investing and trading expenses. If you're a trader and you use
for your trading
investing accounts, the cost of the subscription should be allocated between the two accounts. The portion of the fee that relates to your investment activities would be reported on Schedule A. The remainder would go on Schedule C as part of your trading business expenses. Keep a log so you can track the amount of time you spend on each account.
In general, you need to keep good records. This can't be stressed enough. The more expenses you can prove, the more you can deduct.
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TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.