"Other expense" also includes the total amount you paid to produce or collect
taxable income and manage property held for earning income.
For investors this means you can deduct things like the fees paid for professional
investment advice and even subscriptions to investment
magazines or newsletters. You can claim the portion of ISP charges you incur
while reading this column and tracking your investments.
Say you spend 10 percent of your online time every month tracking your portfolio or
trading. Then deduct 10 percent of the ISP bill.
But remember: You can't use this category to deduct trading commissions: The cost of
buying and selling stock is added to the cost basis of the
investment. You get the tax break when you actually sell the shares.
Not deductible
The travel cost of going to the annual shareholder meeting or fees for an
investment seminar are not deductible. And the cost of producing
tax-exempt income, such as profits on tax-exempt securities, are not deductible because
they already generate tax-free income.
You deduct investment expenses (other than interest expenses) as miscellaneous itemized
deductions on Schedule A (Form 1040). To be
deductible, these expenses must be ordinary and necessary expenses paid or incurred:
1.To produce or collect income, or
2.To manage property held for producing income.
The expenses must be directly related to the income or income-producing property, and
the income must be taxable to you.
The deduction for most income-producing expenses is subject to a 2% limit that also
applies to certain other miscellaneous itemized
deductions. The amount deductible is limited to the total of these miscellaneous
deductions that is more than 2% of your adjusted gross
income.
Attorney or accounting fees. You can deduct attorney or accounting fees that are
necessary to produce or collect taxable income. However, in
some cases, attorney or accounting fees are part of the basis of property.
Fees to collect income. You can deduct fees you pay to a broker, bank, trustee, or
similar agent to collect investment income, such as your
taxable bond or mortgage interest, or your dividends on shares of stock.
Fees to buy or sell. You cannot deduct a fee you pay to a broker to acquire investment
property, such as stocks or bonds. You must add the
fee to the cost of the property.
You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. They can be used only to figure gain or loss from the sale.
Investment counsel and advice. You can deduct fees you pay for counsel and advice about investments that produce taxable income. This includes amounts you pay for investment advisory services.
Safe deposit box rent. You can deduct rent you pay for a safe deposit box if you use
the box to store taxable income-producing stocks, bonds,
or other investment-related papers and documents. If you use the box to store not only
taxable securities but also tax-exempt securities or
personal items, you can deduct only part of the rent. See Tax-exempt income later, under
Nondeductible Expenses, to figure what part you can
deduct.
State and local transfer taxes. You cannot deduct the state and local transfer taxes
you pay when you buy or sell securities. If you pay these
transfer taxes when you buy securities, you must treat them as part of the cost of the
property. If you pay these transfer taxes when you sell
securities, you must treat them as a reduction in the amount realized.
Trustee's commissions for revocable trust. If you set up a revocable trust and have its
income distributed to you, you can deduct the
commission you pay the trustee for managing the trust to the extent it is to produce or
collect taxable income or to manage property. However,
you cannot deduct any part of the commission that is for producing or collecting
tax-exempt income or for managing property that produces
tax-exempt income.
If you are a cash-basis taxpayer and pay the commissions for several years in advance,
you must deduct a part of the commission each year.
You cannot deduct the entire amount in the year you pay it.
Investment expenses from pass-through entities. If you hold an interest in a
partnership, S corporation, real estate mortgage investment conduit
(REMIC), or a nonpublicly offered regulated investment company (mutual fund), you can
deduct your share of that entity's investment expenses. A
partnership or S corporation will show your share of these expenses on your Schedule K-1.
A nonpublicly offered mutual fund will indicate your
share of these expenses in box 5 of Form 1099-DIV, or on an equivalent statement.
If you hold an interest in a REMIC, any expenses relating to your residual interest
investment will be shown on line 3b of Schedule Q
(Form 1066). Any expenses relating to your regular interest investment will appear in box
5 of Form 1099-INT or box 7 of Form 1099-OID.
Report your share of these investment expenses on Schedule A (Form 1040), subject to
the 2% limit, in the same manner as your other
investment expenses.
IRA Fees if paid from your funds (not paid from the IRA account) are deductible.
Investment interest can be deductible - please refer to the section on investment interest as it has many rules to follow. Other investment expenses may be deductible.