Since the Internal Revenue Service makes you pay tax on your investment earnings, it's only fair that it lets you write off what you spend to make money. As long as you itemize your deductions on Schedule A, you're allowed to write off the cost of a range of different investment expenses. The allowed expenses generally include any advisory fees you pay.
Deductible Advisory Fees
Any money that you spend for "counsel and advice" on your investments or for advisory services is tax-deductible. This includes the cost of subscriptions to financial magazines. You can also write off the cost of any accountants or attorneys that help you with your investments. However, if they provide assistance or advice that is specific to a transaction, you might need to include their fees with the cost of the asset instead of separately deducting it. Go ahead and ask your accountant for clarification of how to write off your advisory costs. Her advice will be tax deductible!
Other Deductible Expenses
You can also deduct the cost of safe-deposit boxes that you use to hold assets, such as stock certificates. If you lose a physical security , such as a bond or a stock certificate, and incur expense to replace it or to post a bond for the lost document, those costs are also deductible. Any fees you pay to collect income, like an account management fee, are also write-offs.
Claiming the Deduction
You must itemize your deductions on Schedule A to deduct your investment advisory fees. The investment expense deduction is also income-limited. To find your allowed amount, add it together with your unreimbursed work expenses, tax preparation fees and other miscellaneous deductions. Subtract 2 percent of your adjusted gross income from the sum. You can write off what's left. Suppose that in a given tax year you spent $1,200 on advisory fees and other investment expenses and $100 for tax preparation software, and that you had $2,200 in work-related expenses. With an adjusted gross income of $140,000, you would only be able to deduct $700. The $700 comes from your $3,500 in miscellaneous expenses reduced by $2,800, which is 2 percent of your $140,000 AGI.
While investment advisory fees are tax-deductible, investment seminar attendance is not, even if you get good information there. In the same vein, you cannot write off the cost of going to stockholder meetings. If your stockbroker is your primary source of investment advice and you pay him through commissions on transactions instead of through an advisory fee, you can't write off those commissions. Instead, you must add them to the purchase price and subtract them from the sale price of the asset so that your capital gains tax liability is reduced.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.